The Treasury Department has told the Singapore-based Broadcom that national security concerns about its proposed takeover of Qualcomm have been “confirmed,” increasing the likelihood that officials will recommend that President Trump block the deal.
Broadcom’s efforts at a hostile takeover of Qualcomm are currently being investigated by the Committee on Foreign Investment in the U.S. (CFIUS), an interagency panel chaired by the Treasury Department tasked with investigating foreign deals for U.S. companies. The committee put a halt to Broadcom’s campaign last week in order to investigate the potential deal over national security concerns.
In a letter to lawyers representing both companies dated Sunday, Aimen Mir, a top Treasury and CFIUS official, hinted that the interagency panel is leaning toward recommending against the deal.
“That investigation has so far confirmed the national security concerns that CFIUS identified to you in its letter on March 5, 2018. That investigation is expected to close soon,” Mir wrote, asking Broadcom for additional information.
Qualcomm made the letter public Monday.
CFIUS is concerned that the deal would threaten the investments Qualcomm has made in areas like 5G technology, thus opening the door for other countries to surpass the U.S. in the race to establish new wireless networks.
“Given well-known U.S. national security concerns about Huawei and other Chinese telecommunications companies, a shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States,” CFIUS wrote in a letter to the companies’ attorneys last week.
Broadcom has since been trying to reassure lawmakers and regulators that it intends to prioritize investments in 5G development and preserve U.S. leadership in the field.
“Any notion that a combined Broadcom-Qualcomm would slash funding or cede leadership in 5G is completely unfounded,” Broadcom CEO Hock Tan told Congress last week. “We have a proven track record of investing in and growing core franchises in the companies we acquire. In the case of Qualcomm, this will be 5G cellular.”
Tan emphasized that Broadcom will soon be an American company, and he promised not to sell any of Qualcomm’s assets to foreign entities.
The company is trying to expedite its shift to the U.S. in the hopes that the move will lessen the scrutiny from CFIUS.
But Mir accused Broadcom of violating a CFIUS order regarding the proposed takeover that required the company to give the panel five days notice about its plans to shift its operations to the U.S. Broadcom denied the accusation, saying it has been upfront about its efforts to redomicile as a U.S. company.
“Given Broadcom’s public disclosures about the redomiciliation process since last November, as well as its direct communications to CFIUS, Broadcom has been fully transparent with CFIUS about the redomiciliation process, and believes it is in full compliance with the March 4 Interim Order,” the company said in a statement.
Broadcom has repeatedly denied that the Qualcomm proposal poses a threat to national security.
CFIUS has amped up its scrutiny of foreign acquisitions of U.S. companies lately, with a particular focus on Chinese bids for American tech firms. Last year, on the advice of CFIUS, Trump vetoed Chinese investors’ efforts to buy Lattice Semiconductors. CFIUS voiced similar concerns about both the Lattice and Qualcomm deals, noting that the U.S. government has contracts with both.
But a presidential veto of a business deal on the advice of CFIUS is rare, largely because companies often back away their proposals once it becomes clear that the panel is skeptical of them. That’s what happened in January, when the Alibaba Group abandoned its $1.2 billion proposal to buy the U.S. company MoneyGram.
Mir said in his letter that officials from CFIUS, Broadcom and Qualcomm were scheduled to meet Monday and that the government had asked Broadcom for information about its proposed acquisition. Both companies have deadlines Monday for submitting information about the proposed deal.
“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,” the letter reads.
Updated at 2:12 p.m.