US Gets Testy With Broadcom Over Qualcomm Buy; Will Politics Settle the Deal?

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Broadcom Ltd. (NASDAQ: AVGO) said this morning that it expects to have completed the process of relocating its business to the United States by April 3. The announcement is widely seen as an attempt to fend off a review by the U.S. Committee on Foreign Investment in the United States (CFIUS) that could torpedo Broadcom’s hostile takeover of Qualcomm Inc. (NASDAQ: QCOM).

In a press release, the company noted that its pending acquisition of Brocade was approved by CFIUS in November of last year just two weeks after Broadcom CEO announced its plan to redomcile in the United State during a joint appearance with President Trump. Broadcom announced its plans to explore a Qualcomm acquisition the day after CEO Hock Tan’s appearance with the president.

Broadcom apparently believes that if it completes its move to the United States then the ongoing CFIUS investigation will be mooted.

That is a hazy legal area, according to a report from Reuters citing a note to clients from law firm Kirkland & Ellis:

It is not entirely clear how establishing a U.S. domicile would affect CFIUS’ view of its jurisdiction over the proposed transaction. CFIUS’ determination as to whether an entity is considered “foreign” is nuanced and not prescriptive, and encompasses considerations that include a facts and circumstances assessment of ownership and formal and informal mechanisms of control.

In a filing with the U.S. Securities and Exchange Commission (SEC) Monday morning, Qualcomm included a letter dated Sunday from CFIUS accusing Broadcom of “a series of actions” that violated an interim order the committee issued on March 4 that, among other things forced Qualcomm to delay its annual shareholders meeting and required Broadcom to provide five business days’ notice to CFIUS of actions the company took toward redomiciling in the United States.

CFIUS details actions Broadcom took in Singapore — currently is home country — that did not meet the five-day requirement. And CFIUS is not pleased:

In light of the actions that Broadcom has taken in violation of the Interim Order to shorten the time period for CFIUS investigation, CFIUS requests that Broadcom provide any information responsive to the March 5, 2018 letter as soon as possible. In the absence of information that changes CFIUS’s assessment of the national security risks posed by this transaction, CFIUS would consider taking further action, including but not limited to referring the transaction to the President for decision.

Comments from Broadcom and Qualcomm were due by noon Monday.

If you’re wondering what the heck is going on, you’re not alone. Here are a couple of possibilities. On one hand, two U.S. Senators, Republicans Tom Cotton of Arkansas and John Cornyn of Texas, want a closer national security-based review of Broadcom’s takeover of Qualcomm. Broadcom’s move to the United States apparently doesn’t pass the smell test for these senators.

On the other hand, Broadcom got Trump’s blessing last November in exchange for some nice words from Hock Tan on the tax law changes along with a plan to redomicile in the United States because of the new tax laws. Will the president even remember?

With tariffs and protectionism now all the rage in Washington, Broadcom may find itself left high and dry even though its CEO is a naturalized American citizen. In fact, Broadcom remains only as the name of a company that was acquired by Avago, which was domiciled in Singapore. Avago itself was the semiconductor unit of Hewlett-Packard way back in the day (until 1999).

We haven’t even mentioned a possible acquisition of Broadcom by Intel Corp. (NASDAQ: INTC) that has been bandied around since late Friday, mostly because we don’t think Intel will pull the trigger on such a deal. Broadcom could command a price north of $150 billion, and then there’s the regulatory scrutiny.

But who knows? None of us for sure, until the music stops and we see who’s left out.

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