Qualcomm meeting on hold, but Broadcom drama still heats up

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Qualcomm Inc.’s annual shareholder meeting has been put on hold while the U.S. probes whether the hostile buyout attempt by Broadcom Ltd. presents a national security risk, and both companies squabbled in their respective statements.

The frustration at Broadcom with the delay of the meeting becomes even more acute following a Bloomberg report that Broadcom was on course to collect enough shareholder votes to green-light its slate of directors to Qualcomm’s board, which would give it a majority to push forward with the deal.

Qualcomm’s annual shareholder meeting was scheduled for Tuesday, after Broadcom lowered its offer to Qualcomm to $79 a share from $82 a share after Qualcomm raised its own bid to acquire NXP Semiconductors NV NXPI, +0.56% , which followed months of jockeying between the companies in a proxy battle about their respective slate of directors. But late Sunday, the Committee on Foreign Investment in the U.S. announced that meeting would be delayed by at least 30 days while it investigated the deal.

Qualcomm QCOM, -1.13%  shares declined 1.1% to close at $64.01, while Broadcom AVGO, -1.55%  shares fell 1.6% to finish at $246.98. For the year, Broadcom shares are down 3.9%, while Qualcomm shares are flat. In comparison, the S&P 500 index is up 1.8% for the year.

Broadcom blasted the move, saying that Qualcomm had “secretly filed a voluntary request with CFIUS to initiate an investigation” in late January to delay the meeting, calling it “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.”

Qualcomm responded that Broadcom’s statement “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.”

Qualcomm continued: “Broadcom’s claims that the CFIUS inquiry was a surprise to them has no basis in fact. Broadcom has been interacting with CFIUS for weeks and made two written submissions to CFIUS.”

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Republican Sen. Tom Cotton from Arkansas issued a statement in support of the probe.

“Qualcomm’s work is too important to our national security to let it fall into the hands of a foreign company — and in a hostile takeover no less,” he said.

Cotton said it’s “hard to see a good reason why we should hand over one of our leading computer-chip makers, and thereby give Chinese companies a leg-up in the race to develop 5G and the next generation of technology.”

Chinese tech companies have also worried about the tie-up on concerns it could squeeze margins for mobile phone makers.

Broadcom is based in Singapore but the company said back in November 2017 that it would move its headquarters to the U.S. In a statement, Broadcom also underscored its board of directors and senior management are “almost entirely Americans.”

CFIUS has been active in stepping between foreign companies who are seeking to buy U.S. chip makers in the past couple of years. For example, CFIUS has helped to scuttle deals from Chinese firms to acquire Xcerra Corp. XCRA, +0.10%  and Lattice Semiconductor Corp. LSCC, +0.83%  .

Cowen analyst Karl Ackerman, who has an outperform rating on Broadcom and a $315 price target, said he highly doubts Broadcom will pull its $79 a share bid for Qualcomm, even though the request for a CFIUS probe that delayed the shareholder meeting violated terms of the offer. Ackerman, who does not cover Qualcomm, sided with Broadcom and noted the company is expected to relocate back to the U.S. by May 6, which “should eliminate the need for CFIUS approval.”

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“We continue to see the final outcome of the AVGO/QCOM transaction entirely dependent on QCOM’s shareholder vote, not its [Board of Directors],” Ackerman said. “AVGO’s opportunity in wired and inexpensive valuation provide a backstop against near-term deal concerns.”

RBC Capital Markets analyst Amit Daryanani, who considers Broadcom a “top pick” and has a $325 price target on the stock, said he is less certain that the deal goes through.

“Given QCOM’s recent revised bid and the delay of the annual shareholder meeting, we see increased probability that QCOM will remain as an independent company,” Daryanani said.

Daryanani said that Broadcom can sustain double-digit growth with or without Qualcomm and noted that other possible takeover candidates for Broadcom could be Xilinx Inc. XLNX, +0.79% , Analog Devices Inc. ADI, +1.80% , Maxim Integrated Products Inc. MXIM, +0.82% or Marvell Technology Group Inc. MRVL, +0.30% .