Government Calls Broadcom’s Bid for Qualcomm a National Security Risk

The United States government said Broadcom’s proposed acquisition of rival chipmaker Qualcomm could pose a national security risk and called for a full investigation into the hostile bid.

The move complicates an already contentious deal and increases the likelihood that Broadcom, which is based in Singapore, will end its pursuit of Qualcomm. Such an investigation is often a death knell for a corporate acquisition.

A government panel, the Committee on Foreign Investment in the United States, or Cfius, noted, in part, that the potential risk was related to Broadcom’s relationships with foreign entities, according to a letter from a United States Treasury official. It also said that the deal could weaken “Qualcomm’s technological leadership,” giving an edge to Chinese companies like Huawei.

“China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” the official said in the letter.

The letter and the public call for an investigation reflects a newly aggressive stance by Cfius. In most cases, the panel operates in secret and weighs in after a deal is announced. In this instance, Cfius, which is made up of representatives from multiple federal agencies, is taking a proactive role and investigating before an acquisition agreement has even been signed.

The move reflects increased worries about overseas deals and about Chinese influence in central industries like technology. Cfius has recently blocked several deals by Chinese buyers, including Ant Financial’s proposed takeover of MoneyGram, a money-transfer company.

Broadcom tried to quell concerns about the deal early on, announcing last year that it would move it headquarters from to the United States. As a result, the company argued, it should not be subject to a Cfius review.

But Qualcomm, which is based in San Diego, pushed the government to intervene. O n Sunday, Cfius ordered Qualcomm to delay its annual shareholder meeting, which was scheduled for Tuesday and where investors were set to vote on the Broadcom bid.

Now, the government panel is going a step further by calling for a full investigation — and a major root of the consternation is China.

In the letter from the Treasury official, the government said it was important to have a well-known and trusted company “hold the dominant role that Qualcomm does in the U.S. telecommunications infrastructure.” Any loss of that competitiveness, the letter said, “would significantly impact U.S. national security.”

China, the letter said, could take advantage of any weakness. The government specifically cited Huawei, the Chinese telecom-equipment giant, as a potential competitor that would move into the breach. The company has spent heavily on the next-generation telecommunications technology known as 5G, and the government said it owns 10 percent of the essential patents.

“A shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States,” the government said in the letter.

Content originally published on https://www.nytimes.com/2018/03/06/business/qualcomm-broadcom-cfius.html by THE NEW YORK TIMES