A U.S. government national security panel said it identified potential risks that warrant a full investigation of Singapore-based Broadcom Ltd.'s $117 billion bid for chipmaker Qualcomm Inc, a senior U.S. Treasury official said in a letter to the companies Monday.
Now, with Qualcomm using the CFIUS investigation as reason to push back the shareholder vote on the acquisition until at least April, Broadcom is launching its own charm offensive and pledging to pour money into the USA research and education fields with its $1.5bn fund promise.
The Committee on Foreign Investment in the USA, led by the Treasury, is investigating the $117 billion offer by Broadcom on national seucurity grounds, an unusual move that threatens to derail what would be the biggest deal in the history of technology.
Broadcom's hostile takeover attempt of Qualcomm could pose a national security risk because of Qualcomm's leadership in developing critical semiconductor technology, according to the U.S. treasury department, setting up a potentially insurmountable hurdle to getting a deal done.
Qualcomm did not deny seeking a CFIUS review but accused Broadcom of using misleading rhetoric "to trivialize and ignore serious regulatory and national security issues".
Broadcom has pledged to move its headquarters from Singapore to the USA, possibly as soon as May.
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The combination of Broadcom and Qualcomm would create one of the world's largest semiconductor businesses. The company has delayed its annual meeting to April 5.
According to CFIUS, the statements from Broadcom that it would take a "private-equity" style approach to the acquisition suggest it would reduce long-term investment in order to focus on short-term profitability.
"While the United States remains dominant in the standards-setting space now, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover", the letter said. If it achieves its goal of acquiring Qualcomm, Broadcom said it expects to have more than 25,000 employees in the U.S. Harm to Qualcomm's innovation would allow China to expand its influence in key wireless technology, the government said. In the past dozen years, Broadcom has spent six times as much on acquisitions as it has on research and development.
In a statement, Broadcom said that it would not only maintain Qualcomm's current spending on research and development but that it would also increase that amount.
Qualcomm's shares slipped 41 cents to $64.33, while Broadcom's were down $1.46 at $249.41.