Government Worries China Will Profit From Hostile Takeover Of US Company

The U.S. government is concerned with national security risks associated with a Singapore-based company being allowed to take over America’s largest and only semiconductor manufacturer.

The United States’ Committee on Foreign Investment (CFIUS) took the unusual step Monday of ordering California-based chipmaker Qualcomm to delay a board meeting scheduled for Tuesday where Singapore company Broadcom Limited planned to seize control in a hostile takeover.

“Qualcomm has become well-known to, and trusted by, the U.S. government,” the U.S. Department of Treasury, which manages the CFIUS process, said in a letter to the companies Monday.

“Having a well-known and trusted company hold the dominant role that Qualcomm does in the U.S. telecommunications infrastructure provides significant confidence in the integrity of such infrastructure as it relates to national security.”

Broadcom has sought to acquire Qualcomm since November in what would be the largest tech merger in history at $117 billion, but the U.S. company rejected each offer. Broadcom then attempted to force a vote to install six new members on the 11-person board, who would effectively do Broadcom’s bidding, but the U.S. government intervened.

The Treasury Department’s concern is both over national security issues and a fear China would be able to gain a strategic advantage in future 5G networks development. The U.S. remains dominant in setting standards for 5G now, but “China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” according to the Treasury.

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It would represent “a weakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard-setting process” if Broadcom succeeded in taking over Qualcomm and divided research assets, according to the letter. “Chinese companies, including Huawei [Technologies], have increased their engagement in 5G standardization working groups as part of their efforts to build out a 5G technology.”

Qualcomm also holds a number of government contracts, particularly classified and unclassified work for the Department of Defense, which the Treasury seeks to protect. Several Republican members of Congress back CFIUS’s intervention, including Majority Whip Sen. John Cornyn of Texas and Sen. Tom Cotton of Arkansas.

“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,” Cotton said in a statement Monday.

CFIUS’s ability to intervene in the merger could disappear if Broadcom moves its headquarters to the U.S., as it promised to do at a public White House ceremony in November. The company will complete a corporate restructure and be headquartered in the U.S. by May 6, 2018.

The moving “process is well underway” and accused Qualcomm of secretly scuttling the takeover effort by appealing to CFIUS, Broadcom insists.

Broadcom did not immediately return The Daily Caller News Foundation’s request for comment. It’s unclear whether the company will attempt to install the friendly board members at Qualcomm’s next meeting scheduled April 5.

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