U.S. Orders Qualcomm to Delay Board Meeting for Review of Broadcom Offer --6th Update
By Stu Woo
The U.S. government ordered Qualcomm Inc. to delay its shareholder meeting this week to provide it more time to review rival Broadcom Ltd.'s proposed $117 billion takeover of the chip maker.
The move, which Broadcom said was a response to a request by Qualcomm, represents a highly unusual intervention by Washington and will delay Broadcom's proxy fight for control of Qualcomm's board. Qualcomm's shareholders were set to vote on whether to replace six of its 11 directors with nominees put forward by Broadcom.
It is also the latest twist in a monthslong effort by Broadcom to pull off what would be the world's biggest technology-industry takeover ever. While regulatory scrutiny in Washington has always loomed large over the prospects for the deal, the two sides have mostly sparred over price. In recent weeks, Qualcomm signaled both companies were inching closer to finding a way forward. Monday's move now makes the U.S. government a key player in any potential tie up.
Qualcomm, based in San Diego, has so far spurned Singapore-based Broadcom's takeover offer, forcing Broadcom to go hostile in its pursuit. Qualcomm's shares fell 1.6% in premarket trading.
In a statement early Monday, Broadcom said Qualcomm in January requested a U.S. government review that will delay the Qualcomm shareholder vote on directors. That vote was slated for Tuesday.
Broadcom said it learned of Qualcomm's request on Sunday night, and that Qualcomm had not disclosed its request in its interactions with Broadcom.
Qualcomm said it would delay its shareholder meeting at least 30 days to comply with the order from the Committee on Foreign Investment in the U.S., known as CFIUS. In a statement, the company said Broadcom's claim of surprise at the CFIUS inquiry "has no basis in fact," and that its suitor has been in contact with the body for weeks. The statement didn't say, however, whether Qualcomm had reached out to CFIUS to request a review as Broadcom has claimed.
CFIUS will review the merger, Broadcom said. The secretive committee is headed by the Treasury Department and includes officials from the Justice, Defense, Homeland Security and Energy departments. It reviews foreign acquisitions of U.S. assets on national-security grounds.
Typically the panel only weighs in after a deal is agreed. It can recommend that the president block any deal it deems a threat. In this case, though, some members argued CFIUS could weigh in on the boardroom battle itself, arguing it raised national security issues on its own, according to people familiar with the matter.
"The Committee on Foreign Investment in the United States [CFIUS] issued an interim order to Qualcomm directing it to postpone its annual stockholders meeting and election of directors by 30 days," a Treasury spokesman said in a statement. "This measure will afford CFIUS the ability to investigate fully Broadcom's proposed acquisition of Qualcomm."
Qualcomm does sensitive work for the U.S. government, people familiar with the matter have said. In addition, some U.S. officials and lawmakers are concerned Broadcom could sell parts of Qualcomm and hobble the U.S. in its race with China for developing the next generation of wireless technology, called 5G.
Qualcomm is one of America's leading developers of technology and patents for 5G, which promises the ultrafast cellular connections needed for self-driving cars, virtual reality and other innovations. But Chinese companies, especially telecommunications-equipment giant Huawei Technologies Co., have been more aggressive than U.S. ones on such research and development.
Huawei's equipment has been effectively barred from the U.S. since a 2012 congressional report said China might use Huawei's equipment to spy or disable telecom networks. Washington's broad concern is that a weakened Qualcomm could allow Huawei to further its market-leading position, leaving U.S. carriers no choice but to use its equipment. Huawei has said no government has ever asked it to spy on or sabotage another country.
Broadcom says its chief executive, Hock Tan, is American, as are most of its board and senior management team. It has said it has plans to relocate from Singapore to the U.S.
In the statement Monday, Broadcom said it would cooperate with the CFIUS review and accused Qualcomm of disenfranchising its shareholders.
Broadcom launched an unsolicited $105 billion bid for Qualcomm in November, initially offering about 28% more than Qualcomm's share price before news of the possible bid leaked out. It raise that to more than $120 billion at one point, then cut it back again to the current $117 billion offer after Qualcomm raised its separate bid for European giant NXP Semiconductors Ltd. Late last month, Qualcomm appeared to be coming around. It said the two sides had been talking and making progress on price.
Amid that thaw, a debate kicked up inside the U.S. government over the deal. As recently as last week, CFIUS members had debated internally how to handle the attempted hostile takeover. At a Tuesday meeting, CFIUS representatives from the Departments of Justice, Homeland Security, Defense and Energy urged the panel to begin its review of the deal before Qualcomm shareholders went to vote on the slate of directors nominated by Broadcom, according to people briefed on the meeting.
But Treasury Secretary Steven Mnuchin, who has generally been supportive of tightening scrutiny of foreign investment, told his colleagues he wasn't sure the panel had jurisdiction to commence a review at this stage because the deal hadn't yet happened and because it wasn'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 had nominated them and agreed to pay them $100,000 fees, the people said. They read aloud CFIUS statutes that they said clearly granted the panel jurisdiction to review a foreign acquisition through a proxy contest, according to these people.
Write to Stu Woo at Stu.Woo@wsj.com
(END) Dow Jones Newswires
March 05, 2018 11:46 ET (16:46 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.