Tech

Massive Qualcomm takeover is on hold after United States government intervention

Massive Qualcomm takeover is on hold after United States government intervention

Wrapping up the move from Singapore and redomiciling in the United States relatively quickly could remove a roadblock to the proposed deal by calming concerns at the inter-agency Committee on Foreign Investment in the United States (CFIUS), which has the power to stop deals that could harm national security.

Broadcom is seeking to elect six nominees to Qualcomm's board of directors at the annual meeting, which had been scheduled for Tuesday.

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The Qualcomm statement said CFIUS is an independent governmental body charged with protecting USA national security and "has determined that there are national security risks to the United States as a result of and in connection with the transaction proposed by Broadcom".

Regardless of which side one believes, the NYT says the intervention of the USA government before a takeover agreement is even reached is somewhat unusual and reflects "a charged political atmosphere in which scrutiny of takeovers of American companies by global challengers has increased drastically". Now Broadcom won't get that opportunity, as the meeting has been delayed while the United States government investigates the deal.

The issue is complicated as CFIUS typically doesn't review a proposed merger until the deal is going forward, and there's no deal to review since Qualcomm has so far rejected the offers.

Qualcomm, which is trying to convince shareholders it is open to the merger at the right price and terms, said last week it had no intention of delaying the annual shareholder meeting.

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Qualcomm is the largest US tech companies and one of the few that manufactures semiconductors, making it a rival to Chinese company Huawei Technologies.

According to a statement from hostile suitor Broadcom Ltd. (NASDAQ: AVGO), Qualcomm "secretly" requested the CFIUS review on January 29. That would give it a majority on Qualcomm's board.

The Singapore-based chip maker insists that upon completion of its redomiciliation to U.S. shores by May 6, the deal will no longer be covered by CFIUS.

Qualcomm reacted with its own statement, saying that Broadcom had already filed documents with CFIUS twice in the past several weeks and should not be surprised about the order.

"It should be clear to everyone that this is part of an unprecedented effort by Qualcomm to disenfranchise its own stockholders", the statement concludes. Broadcom shareholders are expected to vote on the move in early May.

Broadcom shares lost 1.5 percent by the close of trading in NY, while Qualcomm fell 1.1 percent. Broadcom "expects to complete its redomiciliation process to the U.S.by May 6, at which point the proposed acquisition will not be a CFIUS covered transaction", Zino wrote in a report on Monday.