Qualcomm Bid Ignites Administration Fight -- WSJ

03/02/18 02:47 AM EST

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 2, 2018).

By Kate O'Keeffe, Ted Greenwald and Stu Woo 

Members of a U.S. national security panel are locked in a dispute over a hostile takeover bid for chip giant Qualcomm Inc., pitting officials in the departments of Justice and Defense against Treasury Secretary Steven Mnuchin.

In a meeting Tuesday, members of the Committee on Foreign Investment in the U.S., known as CFIUS, debated whether the panel has the right to weigh in on Singapore-based Broadcom Ltd.'s bid of $117 billion for Qualcomm before a deal is struck, according to people briefed on the matter.

Qualcomm is a leader in semiconductor technology and the development of standards for 5G, the next generation of wireless technology that could enable self-driving cars and other innovations. Some members are concerned that if Broadcom buys Qualcomm, it could sell parts of the company and hobble American prospects of eclipsing China in the race to develop the technology, the people familiar with the matter said.

CFIUS, which can advise the president to block takeovers by foreign companies on national security grounds, is chaired by the Treasury Department and includes members from other agencies, including Justice, Homeland Security, Defense and Energy. Representatives from those four agencies believe CFIUS should begin reviewing the deal before next Tuesday, when Qualcomm shareholders are to vote on a slate of directors nominated by Broadcom, the people said.

San Diego-based Qualcomm has rejected the takeover bid, but Broadcom is trying to put six directors on its 11-person board to pave the way for a deal. The combined company would be the market leader in a variety of chips for smartphones and data centers.

The debate is a delicate matter for the White House because President Donald Trump has celebrated an earlier pledge by Broadcom to move its headquarters from Singapore to the U.S. An aggressive review by CFIUS could hinder the company's deal proposal, which is already far from assured.

The White House declined to comment. Broadcom said Thursday that the company is "committed to reincorporating from Singapore to the U.S." and expects to receive approval for the move by the end of its fiscal second quarter in May. Qualcomm declined to comment.

Typically, CFIUS reviews attempts by foreign entities to buy controlling stakes in U.S. companies as opposed to bids for board control, and there are few if any recent precedents involving a situation like this.

But some members of CFIUS believe the proposed deal raises national-security concerns, even at this preliminary stage, because Qualcomm does sensitive work for the U.S. government, according to the people familiar with the matter.

They argue that if the panel doesn't act before the board vote, it could set a dangerous precedent and make proxy battles the preferred approach for foreign companies seeking to evade a review.

In regard to the 5G concerns, Chinese companies, especially telecommunications-equipment giant Huawei Technologies Co., have been the most aggressive in the process of setting global standards. The company has been effectively barred from the U.S. market since a 2012 congressional report said China might use Huawei's equipment to spy or disable telecom networks. A Huawei spokesman said no government has ever asked it to spy on or sabotage another country.

Qualcomm and Huawei, which is also the world's No. 3 smartphone brand, compete for patents too.

The CFIUS officials' broad concern is that a weakened Qualcomm could allow Huawei to further its already strong position in the telecom-equipment industry, eventually leaving U.S. carriers, such as AT&T Inc., no choice but to use its gear.

Senate Majority Whip John Cornyn (R., Texas) warned Mr. Mnuchin recently that Huawei "will win the race for 5G," and he urged CFIUS to take immediate action on Broadcom's bid. Sen. Cornyn and Rep. Robert Pittenger (R., N.C.) are pushing legislation to expand CFIUS's jurisdiction, taking particular aim at Chinese technology deals.

Broadcom has said that if required by antitrust regulators, it would sell Qualcomm's businesses making chips for Wi-Fi networks and processing radio signals, areas where the companies make overlapping products. Broadcom also has agreed in principle to divest unspecified businesses of its own, if necessary, according to an open letter recently issued by Qualcomm.

In the Tuesday meeting, some CFIUS representatives asked why the panel had not begun its review of Broadcom's bid, according to the people who were briefed.

Mr. Mnuchin, who has endorsed the congressional CFIUS bill and generally been supportive of tightening scrutiny of foreign investment, told his colleagues he was not sure the panel had jurisdiction to commence a review yet because the deal hasn't happened and it isn't clear to him that directors being nominated by Broadcom would be firmly under the company's control, the people said.

Opponents of this view told Mr. Mnuchin that they believe Broadcom would indeed control the directors since the company nominated them and agreed to pay them $100,000 fees, the people said. They read aloud CFIUS statutes that they said clearly grant the panel jurisdiction to review a foreign acquisition through a proxy contest, according to these people.

Even if CFIUS decides not to act immediately, it could commence a review of the potential deal once it's agreed upon or, assuming a deal is completed, if Broadcom moves to sell any of the combined company's assets to a foreign entity.

Broadcom's move to the U.S. awaits a vote by the company's shareholders, scheduled to take place on May 6. If CFIUS were to then consider Broadcom a U.S. company, any of its attempted U.S. deals would fall outside the committee's jurisdiction.

Write to Kate O'Keeffe at kathryn.okeeffe@wsj.com, Ted Greenwald at Ted.Greenwald@wsj.com and Stu Woo at Stu.Woo@wsj.com


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March 02, 2018 02:47 ET (07:47 GMT)

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