Broadcom responds to US security concerns over proposed Qualcomm acquisition

7 Mar 2018140 Views

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Pin on PinterestShare on RedditEmail this to someone

Singapore, where Broadcom is currently located. Image: Sean Pavone/Shutterstock

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Pin on PinterestShare on RedditEmail this to someone

Broadcom has responded to a letter from the US Treasury, which outlined the body’s worries about its proposed hostile takeover of Qualcomm.

On Monday (5 March) the US Treasury, which chairs the Committee on Foreign Investment in the US (CFIUS), sent chipmakers Broadcom and Qualcomm a letter outlining worries about the former’s possible takeover of the latter.

The letter was only made public by Qualcomm on Tuesday 6 March and is a rarity as the CFIUS rarely weighs in on deals it is examining.

The proposed takeover of Qualcomm by Broadcom could be the largest ever tech acquisition in history if it is given the go-ahead. While much of the CFIUS’s national security concerns were not detailed in the letter due to their classified nature, the board did mention worries around Broadcom’s “relationships with third party foreign entities and the national security effects of Broadcom’s business intentions with respect to Qualcomm”.

The foreign entities were not named. Broadcom is currently based in Singapore, but has promised to relocate to the US if the deal is approved.

Could the deal weaken Qualcomm?

The US is concerned that the deal would weaken Qualcomm’s position as a global telecoms leader, particularly if Broadcom uses its ‘private-equity’ style approach to Qualcomm. The committee said this could then lead to lower investment in R&D due to pressure to focus on profitability in the short term.

The letter also confirmed that Qualcomm had requested an investigation by the panel of Broadcom’s takeover of its panel of directors through a proxy vote. The US official who wrote the letter referenced worries about the potential for China to “compete robustly to fill any void left by Qualcomm as a result of this hostile takeover” and noted existing concerns around Chinese companies like Huawei.

Broadcom criticises Qualcomm heavily

Broadcom was forced to delay its annual shareholders meeting two days before it was due to take place after learning Qualcomm had requested the CFIUS investigation, according to CNET. A Broadcom spokesperson said: “This was a blatant, desperate act by Qualcomm to entrench its incumbent board of directors and prevent its own stockholders from voting for Broadcom’s independent director nominees.”

Reassuring the US

In an effort to dispel worries, Broadcom issued a pledge to keep the US at the forefront of emerging mobile technology like 5G if it were to acquire Qualcomm. The company said it would increase R&D spending and create a $1.5bn investment fund to train US engineers.

It said: “Importantly, Broadcom will fund enhanced R&D through lawful business practices rather than predatory and anti-competitive behaviour. There is no truth to Qualcomm’s argument that its anti-competitive licensing practices are needed to fund a robust R&D effort.”

Ellen Tannam is a writer covering all manner of business and tech subjects