Qualcomm Warns of Antitrust Risks From Broadcom Bid

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By Alexei Alexis

Qualcomm Inc., the target of a hostile takeover bid by Broadcom Ltd, is sounding the alarm over potential regulatory hurdles facing the transaction.

The most recent argument from Qualcomm to its shareholders says the combination would likely encounter a lengthy and difficult merger review involving numerous antitrust agencies around the world.

The companies are publicly sparring over the potential market risks of the proposed mega-deal ahead of a March 6 vote by Qualcomm shareholders on whether to replace the chipmaker’s board with Broadcom’s own nominees.

Qualcomm Feb. 22 sent an analysis to its shareholders written by nine antitrust scholars, including seven former regulators, raising regulatory red flags about the merger. Some of the authors have worked with Qualcomm.

“You could anticipate an enormous delay in getting the deal through,” Jim Rill, a former antitrust division chief at the Justice Department, told Bloomberg Law.

Rill, who is a lead author on the paper, said he has previously worked with Qualcomm on matters involving international competition policy, but he’s not advising the company on the Broadcom bid.

Broadcom says the deal, valued at about $117 billion, is good for shareholders and has a “clear path” to completion. Broadcom declined to comment on the paper.

Analysts Predict Deal Clears

Bloomberg Intelligence analyst Jennifer Rie told Bloomberg Law that the deal definitely faces some risk, particularly given the uncertain antitrust merger and acquisition environment.

But Rie sees the risk as falling somewhere in between the opposing scenarios presented by the companies.

“It’s not going to be as easy as Broadcom makes it out to be, though the issues that Qualcomm raises are fixable with a remedy,” Rie said. “I would ultimately lean toward it getting cleared with significant divestitures and likely other behavioral concessions required by the European Commission.”

Latham & Watkins LLP, which is advising Broadcom, published a Feb. 12 alert stating that Qualcomm was trying to hide behind a “smokescreen” of regulatory risk.

Qualcomm’s arguments consist “mostly of general statements about antitrust risks inherent in any deal between competitors, not about this deal in these markets,” Daniel Wall, an antitrust partner in the firm’s San Francisco office, said in the alert.

Licensing Is a Problem

David Balto, a former FTC policy director and frequent Qualcomm critic, told Bloomberg Law that the proposed transaction is a good opportunity for a company that otherwise “might soon be worth a lot less.”

Qualcomm’s lucrative technology licensing business has been at the center of legal challenges and government actions worldwide in recent years. “The biggest risk to Qualcomm shareholders would be if Qualcomm’s management continues to run the company,” Balto said.

Broadcom has agreed to pay Qualcomm a break-up fee of $8 billion in the event that regulatory approval is not received, absent any “material adverse effects.”

To contact the reporter on this story: Alexei Alexis at aalexis@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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