Exclusive: Secretive U.S. security panel discussing
Broadcom's Qualcomm bid - sources
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[February 27, 2018]
By Diane Bartz
WASHINGTON (Reuters) - A national security
panel that can stop mergers that could harm U.S. security has begun
looking at Singapore-based chipmaker Broadcom Ltd's plan to take over
rival Qualcomm Inc, according to three sources familiar with the matter.
CFIUS, an opaque inter-agency panel, has been in touch with at least one
of the companies in the proposed merger, one source said, and met last
month to discuss the potential merger of the two big semiconductor
companies, according to two sources familiar with the matter.
Senator John Cornyn, the No. 2 Republican in the Senate, urged Treasury
Secretary Steven Mnuchin on Monday to have the Committee on Foreign
Investment in the United States, or CFIUS, officially review the
proposed transaction before a key shareholder vote expected on March 6,
according to a letter seen by Reuters.
The pre-deal discussions by CFIUS -- which are extremely rare -- suggest
Broadcom's plans to move its headquarters to the United States before it
completes its proposed purchase of Qualcomm may not be enough to
sidestep a national security review that could threaten the deal.
Part of the CFIUS' current concern, which is echoed in Cornyn's letter,
could lie in the fact that Broadcom has failed to strike a deal with
Qualcomm and has resorted to what is essentially a hostile takeover by
putting forward a slate of six Broadcom nominees for Qualcomm's
11-member board.
If the six are elected on March 6, the vote would give control of
Qualcomm to Broadcom's nominees. That would happen before a CFIUS review
or antitrust review is complete.
"I urge CFIUS to promptly review Broadcom's proposed acquisition of
control of Qualcomm's board, and to act prior to the March 6 Qualcomm
meeting to address any national security concerns that may be
identified," Cornyn wrote to Secretary Mnuchin, according to the letter,
a copy of which was seen by Reuters.
A spokesman for CFIUS declined to comment. Representatives for Cornyn
were not immediately available for comment.
A CFIUS review in itself does not mean a deal will be halted. CFIUS,
under former President Barack Obama and current President Donald Trump,
has soured on high tech deals, particularly involving semiconductors, or
involving sensitive information about American citizens.
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Broadcom Limited company logo is pictured on an office building in
Rancho Bernardo, California May 12, 2016. REUTERS/Mike Blake/File
Photo
Microprocessor expert Linley Gwennap, of the Linley Group, noted that Qualcomm
had world-leading chips in several areas.
"Qualcomm is a crown jewel of the American semiconductor industry," he said. "I
would think that CFIUS would be very protective of that. ... Singapore is
nominally a friendly country but it still seems dangerous for that level of
technology to go overseas."
Broadcom, which is based in Singapore, struggled to win CFIUS approval to buy
Brocade Communications Systems late last year. In the end, that approval came
just weeks after Broadcom CEO Hock Tan announced in an Oval Office ceremony with
Trump that Broadcom would return its headquarters to the United States.
Broadcom declined to comment on the CFIUS process for this deal but reiterated
that it intends to move forward with its move to the United States after
receiving approval to do so, which is expected on May 6.
Lawyers who take deals to CFIUS and know how the panel thinks said that it was
unusual, if not unprecedented, for a company to move to the United States to
avoid CFIUS scrutiny. But they also said that the strategy could work.
"Broadcom could very well establish its position as a U.S. person," one expert
said privately to protect business relationships. "Would CFIUS want to look at
it? They would want to be comfortable that Broadcom is actually a U.S. person
within the meaning of the statute."
Others cautioned that CFIUS could also look at the make-up of Broadcom's board
and who the major shareholders are as a way to determine if control of the
company resides outside the United States.
(Reporting by Diane Bartz; Editing by Chris Sanders and Lisa Shumaker)
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