Qualcomm vote on hold due to national security concerns
[Update: The stockholders meeting has been rescheduled for April 5, according to Qualcomm officials.]
SAN DIEGO – Federal regulators have ordered San Diego-based Qualcomm to postpone a stockholders vote on whether to sell the company to rival chip maker Broadcom, due to national security concerns raised by several members of Congress.
The vote was set to take place Tuesday at Qualcomm‘s annual shareholders meeting. But a half-dozen lawmakers called for a review of Broadcom’s $79-per-share, roughly $117 billion hostile takeover bid, including Republican Rep. Mike Gallagher of Wisconsin, who said a Broadcom takeover would give a foreign company “visibility into the sensitive work that Qualcomm performs on behalf of the U.S. government.”
Gallagher also said a disruption of Qualcomm’s research and development efforts “would in effect hand the growing competition for 5G to China.”
Qualcomm’s shareholder vote will now be delayed at least a month as the Committee on Foreign Investment in the U.S. investigates Broadcom’s proposed deal.
“The CFIUS issued an interim order to Qualcomm directing it to postpone its annual stockholders meeting and election of directors by 30 days,” said a spokesperson from the U.S. Department of the Treasury, which chairs the interagency regulatory committee. “This measure will afford CFIUS the ability to investigate fully Broadcom’s proposed acquisition of Qualcomm.”
In dueling statements, Broadcom officials claimed the investigation was undertaken at Qualcomm’s request without their knowledge, while Qualcomm officials said the suggestion that the CFIUS investigation was coming as a surprise to Broadcom “has no basis in fact.”
“Broadcom has been interacting with CFIUS for weeks and made two written submissions to CFIUS,” the Qualcomm statement said.
Broadcom, which has put forward six candidates in order to take over the majority of seats on Qualcomm’s 11-member board, called the CFIUS investigation 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.”
“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,” the Singapore-based company said in its statement. “This can only be seen as an intentional lack of disclosure, both to Broadcom and to its own stockholders. This brings Qualcomm’s ‘engagement theater’ to a new low.”
Qualcomm officials countered that the Broadcom response “is a continuation 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.”
The Qualcomm statement said CFIUS is an independent governmental body charged with protecting U.S. 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. In compliance with the CFIUS order, Qualcomm will delay its annual meeting of stockholders and election of directors for at least 30 days so that CFIUS can fully investigate Broadcom Limited’s proposal to acquire Qualcomm.”
Qualcomm officials said that notwithstanding Broadcom’s dismissive rhetoric, “this is a very serious matter for both” companies.
Five other members of Congress signed the Gallagher letter on Friday that was sent to Treasury Secretary Steve Mnuchin.
“We cannot overstate the likely harm that would result to Qualcomm, the U.S. company leading the development of 5G and other next-generation technologies, as well as to United States security interests,” the letter said.
Prior to Gallagher’s letter, Sen. John Cornyn, R-Texas, and local Reps. Scott Peters, D-San Diego, and Duncan Hunter, R-Alpine, had called for a review of the deal, the San Diego Union-Tribune reported.
Broadcom is incorporated and currently based in Singapore, but CEO Hock Tan announced late last year while visiting President Donald Trump at the White House that the company would return its corporate headquarters to the U.S., likely using San Jose as a base.
Buying Qualcomm would make Broadcom the third-largest chip maker, behind Intel Corp. and Samsung Electronics Co. The combined business would become the default provider of a set of components needed to build each of the more than one billion smart phones sold every year.
The company’s hostile takeover attempt has come at a vulnerable time for Qualcomm, which has been embroiled in a long-running legal dispute with Apple and is facing several large fines from governing bodies across the globe, including a $1.23 billion fine recently levied against the company for breaking the European Union’s antitrust laws. Qualcomm said it would challenge that fine.
If Broadcom is ultimately successful in its takeover attempt, the impact on San Diego could be severe. Qualcomm is one of the few major corporations with a global reach to be headquartered in a city known mainly for tourism, and smaller defense and life-sciences firms.
Qualcomm is one of the region’s largest private employers, and the family of co-founder Irwin Jacobs is one of the area’s most generous philanthropists.