Fair Play: Broadcom and Qualcomm and Bears, Oh My


FAIR PLAY

Antitrust deciphered.

Broadcom Blog

Update: The Qualcomm shareholder meeting slated for Tuesday has been postponed, Broadcom announced early Monday. On Sunday, Qualcomm revealed that it had filed a voluntary notice of its possible merger with Broadcom to CFIUS on Jan. 29, resulting in delay of the annual meeting. Broadcom claimed the act was a “desperate act by Qualcomm to entrench its incumbent board of directors.”

 

There’s been a lot of ink spilled recently over whether the Committee on Foreign Investment in the United States (CFIUS) should block Broadcom Ltd.’s hostile takeover of Qualcomm Inc. for national security reasons.

This blunt quote from three Bernstein Research Group analysts pretty much sums up the quality of the debate:

“We are not lawyers (or policy wonks), and don’t know if CFIUS has any real jurisdiction in the current situation, and the cases as laid out feel very weak to us (but politics is politics, so we can't say they won't find some way either).”

Politics is politics. The debate about the pros and cons of the merger is likely to be riddled with spurious statements and some accusations until Qualcomm board members determine the fate of the merger proposal.

Broadcom sent Bernstein’s note to reporters last week, perhaps in the hope that it would cast large wet blanket on statements from Sen. John Cornyn (R-Texas) and Rep. Duncan Hunter (R-Calif.) that CFIUS should investigate the $117 billion merger before it’s formally announced. CFIUS is a multi-agency committee housed in the Treasury Department that reviews cross-border deals in the U.S. that could raise national security concerns.

Broadcom says it has a clear path forward to clear all regulatory hurdles within a year of a formal merger announcement. Agitation from hawkish lawmakers about a yet-to-be settled deal doesn’t help Broadcom make its case to Qualcomm shareholders.

Hunter asserted in a letter to President Donald Trump that Broadcom might not be friendly to the U.S. as a country. He didn’t mention that Broadcom announced last year that it will redomicile to the U.S. from Singapore at an Oval Office press conference with Trump. Hunter also said Broadcom could work with U.S. foes to “compromise communication systems.” That’s a hypothetical leap that seems unlikely, given that Qualcomm has licensed its patents to Chinese business partners for years.

U.S. officials have identified China as a major threat to national security and worry that aggressive investment in U.S. companies by Chinese businesses will give the Chinese government access to valuable technological secrets. The Broadcom-Qualcomm tie-up would combine two of the biggest semiconductor manufacturers in the world to form the third largest behind Intel Corp. and Samsung Electronics Co.

Broadcom, now headquartered in Singapore, is asking Qualcomm shareholders to install six new board members who will be friendly to its takeover. Cornyn said in a letter to Treasury Secretary Steven Mnuchin that the new board members would be “beholden” to Broadcom. Broadcom notes that all but one of its major executives, including its CEO Hock Tan, are U.S. citizens.

The tit-for-tat hardly matters. If Qualcomm shareholders elect the Broadcom slate, they’ll be foremost accountable to the people who voted them in.

The Bernstein analysts say Cornyn and Hunter are jumping the gun. Technically, they’re right. Before Broadcom can hope to make its case to federal regulators, it has to convince the Qualcomm shareholders that the merger is a good idea.

But it doesn’t end there. Qualcomm shareholders then would have to vote to approve the proposed deal. Neither of those two votes – on Broadcom’s board choices or approval of the merger – is a given. And if they both go Broadcom’s way, a shareholder lawsuit probably is a given. It’s common in big contested deals like this.

Be that as it may, it’s never too soon for a politician to jump in to the fray. Cornyn has been vocal recently about the dangers China poses to U.S. national and economic security. He is sponsoring legislation to expand CFIUS’s review authority for that reason. He went as far as saying critics of the bill have a “patriotism deficit.”

Hunter’s congressional district is a few miles from Qualcomm’s San Diego headquarters. No doubt he represents many of Qualcomm’s 33,000 employees. If you have a bullhorn, why not use it?

Quote of the Week

“Instead of doing it piecemeal and largely only benefiting one party, we ought to be moving a complete package of [Federal Trade Commission] nominees. That’s called working bipartisanly.”

--Senate Commerce Committee ranking member Bill Nelson (D-Fla.), on the lack of a fifth Democratic nominee for the FTC. The committee approved three Republican and one Democratic nominee last week.

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