Qualcomm-Broadcom Merger Battle Grows Angrier

March 5, 2018, 5:33 PM UTC

The ugly rhetorical war between semiconductor companies Broadcom and Qualcomm got even uglier on Monday.

Broadcom wants to take over Qualcomm, most recently offering $79 per share, or $117 billion in total, and putting up a slate of candidates for election to Qualcomm’s board. The offer was cut from $82 a share, or $121 billion, after Qualcomm raised its bid for NXP Semiconductors. Qualcomm has so far resisted the unsolicited bid as too low and fraught with regulatory challenges.

Over the weekend, regulators did get involved. The government’s national security merger review body, called the Committee on Foreign Investment in the U.S., asked Qualcomm to delay its scheduled shareholder elections this week so the committee could continue reviewing the possible merger. The committee is charged with ensuring that technologies or other resources critical to national security don’t fall under the control of adversaries.

That prompted a fusillade from Broadcom, with an equally accusatory response from Qualcomm.

Broadcom said it would cooperate with the CFIUS review but added that it had just learned that the investigation was due to a secret, voluntary request from Qualcomm in January.

“This was a blatant, desperate act by Qualcomm to entrench its incumbent board of directors and prevent its own stockholders from voting for Broadcom’s independent director nominees,” Broadcom said in a statement. “It is critical that Qualcomm stockholders know that Qualcomm did not once mention submitting a voluntary notice to CFIUS in any of its interactions with Broadcom to date.”

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Later on Monday, Qualcomm fired back, saying Broadcom’s response was part of “its now familiar pattern of deliberately seeking to mislead shareholders and the general public by using rhetoric rather than substance to trivialize and ignore serious regulatory and national security issues.”

Qualcomm went on to challenge an assertion that wasn’t exactly what Broadcom had asserted. “Broadcom’s claims that the CFIUS inquiry was a surprise to them has no basis in fact,” Qualcomm wrote. “Broadcom has been interacting with CFIUS for weeks and made two written submissions to CFIUS.”

Broadcom had not claimed that it was surprised by the CFIUS investigation, but that it had not known that Qualcomm’s voluntary request was behind the probe.

Update: Broadcom issued a second statement on Monday, making the same point. “Broadcom reiterates that Qualcomm failed to disclose to its own stockholders and to Broadcom that it secretly filed a voluntary unilateral request for CFIUS review on January 29, 2018,” the company wrote. “Broadcom’s only correspondence with CFIUS was in response to CFIUS inquiries about Broadcom’s nomination of directors to the Qualcomm board of directors, and such requests did not reveal that Qualcomm filed to initiate the CFIUS review on January 29, 2018.”

Shares of Qualcomm (QCOM) lost 1% to close at $64.01 on Monday, and remained well below Broadcom’s offer price. Broadcom’s (AVGO) shares dropped almost 2% to close at $246.98.

Analyst Stacy Rasgon at Bernstein Research doesn’t see much likelihood that the CFIUS national security review would find grounds to block a merger. Broadcom is the middle of moving its legal domicile back to the United States from Singapore, which should be completed in the next few months. The company already is run from the United States, has many U.S. employees, and owns critical semiconductor operations and technologies, Rasgon noted.

“Nevertheless, politics can and does have a life of its own, and the early investigation (warranted or not) is proceeding,” he wrote.

The entire CFIUS review could be moot once Broadcom moves its legal headquarters back to the United States, analyst Angelo Zino at CFRA Research, noted. 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.

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