Broadcom promises not to sell security assets

Kelvin Reese
March 13, 2018

Had Broadcom been a USA company, it's possible that it could have completed a hostile takeover of Qualcomm, based in San Jose, Calif., without CFIUS getting involved. The Wall Street Journal reports that sources familiar with the matter say Intel is considering a range of acquisition options in response to Broadcom's bid to purchase Qualcomm.

It has also said that it would not sell "any critical national security assets to any foreign companies", while running infographic adverts claiming that Qualcomm now has a close relationship with the Chinese government. Intel, though, sees its counterpart's focus in the lucrative 5G field as a boon in the waiting.

Broadcom spent about $3.3 billion in 2017 on research and development and $2.7 billion in 2016, while Qualcomm's R&D investment was significantly higher, with about $5.5 billion in 2017 and $5.2 billion in the year before that. But Broadcom has not given up, so it continues with its goal of acquiring this company to annex it to it. An Intel spokeswoman declined to comment on merger prospects but said the company's priority is integrating existing acquisitions.

Intel is reportedly eager for the Broadcom-Qualcomm deal to fail, fearing the combined company could be a significant threat to its business.

CFIUS had delayed Qualcomm's annual meeting by a month to April 5. Broadcom is now headquartered in Singapore, where it relocated from the USA for tax purposes, and is seeking to speed up its move back.

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A successful deal would create a much larger competitor for Intel, said the report.

For the past few months, Qualcomm has been trying to fend off Broadcom's unsolicited advances and has rejected multiple Broadcom bids, the most recent being for $121 billion, or $82 a share.

The Committee on Foreign Investment in the USA sent a letter to the two companies over the weekend saying that it expects to make a ruling soon, and it doesn't sound like Broadcom has convinced CIFUS that the acquisition doesn't threaten national security.

"We believe it will be a stretch for CFIUS to claim Broadcom remains foreign-controlled after (the headquarters move) is completed, though CFIUS may of course try", said Bernstein Research Analyst Stacy Rasgon. However, a few weeks later talks got more argumentative, when Broadcom reduced its buyout offer for Qualcomm to approximately $117 billion, making "an inadequate offer even worse".

Beyond the national security issue, another element hanging over the deal is Intel's apparent interest in potentially bidding for Broadcom.

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