Qualcomm shareholders meeting pushed back to April 5
Qualcomm shareholders were supposed to meet today to decide whether to maintain the current composition of the board or elect six members, a majority, nominated by Broadcom, which is attempting a hostile takeover of the San Diego-based chipmaker. That meeting was pushed back 30 days at the 11th hour by order of the Committee on Foreign Investment in the United States (CFIUS).
CFIUS, part of the U.S. Department of Treasury, said March 4 in a brief statement, it has “issued an interim order to Qualcomm directing it to postpone its annual stockholders meeting meeting and election of directors by 30 days. This measure will afford CFIUS the ability to investigate fully Broadcom’s proposed acquisition of Qualcomm.”
Following the CFIUS order, the two companies traded barbs with Broadcom alleging its acquisition target “secretly filed a voluntary unilateral request for CFIUS review on January 29, 2018. Broadcom’s only correspondence with CFIUS was in response to CFIUS inquires about Broadcom’s nomination of directors to the Qualcomm board of directors, and such requests did not reveal that Qualcomm filed to initiate the CFIUS review.”
Not true, according to Qualcomm, which said the accusation of a secret move “is a continuation of [Broadcom’s] 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…CFIUS 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.”
Broadcom, headed by CEO Hock Tan, is currently based in Singapore, although the company has said if a merger goes forward it will move its headquarters to the U.S. Security-related issues, which we’ll explore more, is one of two primary hurdles; the other is price.
Broadcom is sticking to its position that its most recent offer of $79 per share was its “best and final” proposal — which is less than its previous best-and-final offers, which ranged as high as $82 per share. Broadcom reduced that offer after Qualcomm — which is trying to purchase NXP even as it entertains Broadcom’s offers — increased its public offer for NXP shares, leading Broadcom to trim its offered price and Qualcomm to slam the price reduction as making “an inadequate offer even worse,” since Qualcomm believes it’s more valuable with NXP than without.
The Qualcomm board said that “is unanimous in its view that each of Broadcom’s proposals, including its prior $82.00 per share proposal, materially undervalues Qualcomm, and the board encourages Broadcom to enter into mutual due diligence and price negotiations.” That’s much warmer language than Qualcomm has previously used, and in a letter to Tan, Qualcomm board Chairman Paul Jacobs also referenced the historic nature of such a transaction and said that the board “appreciated the movement” Broadcom had made since its draft merger proposal released on Feb. 9th.
Another variable in play here is Qualcomm’s ongoing attempt to acquire NXP. Qualcomm recently extended its tender offer to NXP shareholders. Click here for more coverage of that situation.
Now, to the security piece. Republican lawmakers supported the move from CFIUS. Sen. John Cornyn, R-Texas, told Reuters, “I’m glad they’re taking a closer look at it. Qualcomm is a leader in 5G technology, which is going to be the new standard in the future. He reportedly called out China as “incredibly aggressive and strategic,” and he’s in favor of “the idea that the committee on foreign investment takes a close look at that to see that American interests are protected.”
Sen. Tom Cotton, R-Ark., also referenced China, 5G and security in a statement. “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. I raised concerns about this proposed takeover to the Treasury Department directly, and I commend the Committee on Foreign Investment in the U.S. for putting it on hold. 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. Better to keep it in American hands and protect American national security.”
Cotton’s interest in 5G expands beyond just this proposed acquisition. He’s also sponsoring legislation that would formally forbid the U.S. government from doing business with Chinese telecom network infrastructure vendors Huawei and ZTE.