Broadcom Ltd.’s hostile attempt to buy embattled communications-chip company Qualcomm Inc. is turning out to be one of the stranger hostile takeover battles in tech — a fight that Qualcomm seemed destined to lose until a last-minute reprieve from friends in high places.
In the wee hours of Sunday morning, Broadcom AVGO, -1.55% said it was informed that the Committee on Foreign Investment in the U.S., or CFIUS, said it plans to review the proposed deal to buy Qualcomm QCOM, -1.13% QCOM, -1.13% just 48 hours before a shareholder meeting that could have proved fatal. At that meeting, investors were to vote on a slate of directors Broadcom had nominated for Qualcomm’s board. Early returns were reportedly in Broadcom’s favor after two of the big shareholder advisory firms recommended investors vote for some or all of Broadcom’s slate to gain a majority vote on the entrenched Qualcomm board.
While it seems like a fortuitous bit of timing for Qualcomm, it may not have been pure luck. In the latest volley of angry statements between the two companies, Broadcom accused Qualcomm of instigating the review on its own.
“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 said in a statement. A spokesman for Broadcom did not respond to a request for further comment and Qualcomm did not respond for further comment.
Qualcomm may not have had to directly ask for a CFIUS review, however, because some friends reportedly did it for the company. According to recent reports, Sen. John Cornyn, R-Texas, and Rep. Duncan Hunter, R-Calif., sent letters requesting the review. Qualcomm’s political action committee has donated $15,000 or more to each politician since 2005, according to Federal Election Commission documents. However, Stacy Rasgon, a Bernstein Research analyst, said a letter by Hunter raised concerns about Broadcom’s expansion into China with strategic collaborations, but ignored the fact that Qualcomm’s “strategic collaborations and interests in China dwarf Broadcom’s.”
Qualcomm rescheduled its meeting for April 5, but that may just delay what appears to be inevitable. While CFIUS should scare foreign chip companies after chasing away a number of proposed Chinese acquisitions, a Singapore-based chip giant that plans to move to the U.S. is not the same thing. And many investors and analysts seem to be in favor of Broadcom’s proposal, even if it is not the best deal for Qualcomm, and could be disruptive coming ahead of the industry’s big transition to 5G mobile network technology.
“We are concerned by Qualcomm’s ongoing disputes with regulators and large customers regarding the company’s business model and practices,” Glass, Lewis & Co. analysts wrote in a report last month, which recommended voting for all six Broadcom candidates. “These and other factors discussed in greater detail below lead us to doubt the credibility of Qualcomm’s stand-alone plan, notably management’s FY2019 earnings target, which the incumbent board has cited as the basis for rejecting Broadcom’s offer price.”
Broadcom also just lowered its latest offer for the embattled communications chip company to $79 a share, because Qualcomm was raising its separate bid for NXP Semiconductors NV NXPI, +0.56% . Broadcom has been in talks with Qualcomm about a potential deal for the past two years, and after being rebuffed it finally made a hostile offer in November, initially at $70 a share. Qualcomm’s disputes with its customers have taken a toll on its financial results.
Ultimately, this deal does not seem to merit the attention of CFIUS, especially with Broadcom’s intention to base itself in the U.S., instead of Singapore. Both companies now have some breathing room, with Qualcomm’s new annual meeting a month away. But it’s also likely that it could lead to another month of he-said she-said statements. It would behoove the two companies to try to mend their differences over the next month, because if this deal is as inevitable as it seems, it would be better to start out as partners instead of enemies slinging mud.