U.S. government halts Qualcomm-Broadcom action amid national security concerns

Qualcomm building
Qualcomm is based in San Diego. (Image: Monica Alleven/FierceWireless)

The U.S. government, through the Committee on Foreign Investment in the U.S. (CFIUS), ordered Qualcomm to delay its shareholder meeting this week so that it can review Broadcom’s proposed $117 billion hostile takeover of Qualcomm.

As noted by The Wall Street Journal, the surprise move signals concerns among U.S. government officials that a Broadcom acquisition of Qualcomm could raise national security issues and potentially affect the United States’ role in the development of 5G network technology as China works to take a lead in the space.

Broadcom, for its part, blasted the move, arguing it was an attempt by Qualcomm to prevent a Broadcom takeover of the company. “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,” Broadcom wrote in a release issued this morning.

Moreover, Broadcom argued that it doesn’t pose a national security threat to the United States. The company is currently based in Singapore but late last year promised to move its headquarters to the United States. The company’s CEO, Hock Tan, was born in Malaysia and is now a U.S. citizen.

“Broadcom, which is run by a Board of Directors and senior management team consisting almost entirely of Americans, and which is largely owned by the same United States institutional investors that own Qualcomm, recognizes the important role CFIUS plays in protecting our national security, and is fully committed to cooperating with CFIUS in any review, just as Broadcom did during its prior successful acquisitions, including its acquisition of Brocade at the end of 2017,” Broadcom wrote in its release. “It should be clear to everyone that this is part of an unprecedented effort by Qualcomm to disenfranchise its own stockholders.”

Qualcomm, for its part, rejected many of Broadcom's points, and noted the issue is a "very serious matter."

"CFIUS is an independent, multi-agency U.S. governmental body charged with protecting U.S. national security," Qualcomm wrote in a release on the topic this morning. "CFIUS has determined that there are national security risks to the United States as a result of and in connection with the transaction proposed by Broadcom."

The injection of national security concerns into Broadcom’s takeover campaign adds a new layer of complexity to a situation already fraught with a range of knotty issues. As noted by the WSJ, the CFIUS is comprised of officials from the Justice, Defense, Homeland Security and Energy departments, and its job is to review foreign acquisitions of U.S. assets on national-security grounds. For example, Deutsche Telekom’s ownership of T-Mobile in the United States falls under the purview of the CFIUS. But the government committee typically only weighs in on transactions after they are completed.

However, if Broadcom is successful in acquiring Qualcomm, it is expected to break up Qualcomm and sell the pieces. That could potentially affect the U.S. position in the emerging market for 5G services – thus paving the way for China and Chinese companies like Huawei to gain an upper hand in the sector.

Indeed, U.S. security concerns about Huawei and China were reignited earlier this year when reports indicated that Verizon and AT&T discontinued plans to sell Huawei smartphones in part due to U.S. government concerns that such an action would pave the way for increased Chinese espionage.

Broadcom launched its bid to take over Qualcomm late last year in a transaction that, if consummated, would be the tech industry’s largest ever. Qualcomm, for its part, has largely resisted the effort, though in recent weeks the company has held several meetings with Broadcom officials.