Broadcom sees reversal of fortune in Trump-era Washington

The Singapore tech giant Broadcom is scrambling to reassure regulators and lawmakers about its hostile takeover of Qualcomm after the federal government put the deal on hold to probe whether it will put national security at risk.

It’s a dramatic reversal of fortune for the company just months after CEO Hock Tan stood alongside President Trump to announce that it would be relocating to the U.S. in a move it said would bring thousands of jobs and billions in revenue.

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“He’s a highly, highly respected man, a great, great executive,” Trump said during the November announcement. “The job he’s done is an incredible job. But what he’s doing is committing to massive amounts of American jobs.”

A few days later, Broadcom announced an unsolicited $130 billion offer for Qualcomm, setting off a months-long feud between the two companies as the latter fought back against the hostile takeover.

Then, in a rare move, the Committee on Foreign Investment in the U.S. (CFIUS) announced it was pausing what would be the biggest tech deal in history in order to investigate its implications for national security. CFIUS ordered Qualcomm to postpone its March 6 shareholders meeting, where Broadcom was reportedly expected to win a majority of its board of director seats.

CFIUS is an interagency panel chaired by Treasury Secretary Steven Mnuchin that is tasked with making sure foreign firms investing in the United States aren’t endangering U.S. security.

The committee has ramped up its efforts in recent years to block Chinese firms from acquiring U.S. companies, but this is the first time it has preemptively intervened in an ongoing deal.

In a letter to Qualcomm’s attorneys on Monday, CFIUS said it was concerned that the deal would harm the company’s work on emerging technologies, thus threatening U.S. efforts in the race to build 5G wireless networks.

“While the United States remains dominant in the standards-setting space currently, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” the letter reads. “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.”

The high-profile intervention has Broadcom scrambling to reassure the U.S. that it doesn’t pose a threat. This week, the company promised to establish a $1.5 billion innovation fund to promote efforts in areas like 5G.

And in a letter to Congress on Friday, Broadcom promised not to sell any assets from a combined company with Qualcomm to foreign entities.

“Broadcom is committed to making the United States the global leader in 5G,” Tan wrote in his letter. “Any notion that a combined Broadcom-Qualcomm would slash funding or cede leadership in 5G is completely unfounded. 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 also accused Qualcomm of jeopardizing its investments in research and development by financing them through anticompetitive licensing practices that have drawn scrutiny from regulators around the world, including the U.S. Federal Trade Commission. Broadcom, he argued, would put Qualcomm’s innovations on firmer ground by funding them through “lawful practices.”

But Tan may face an uphill battle with regulators. If CFIUS finds that the deal presents significant national security concerns, it may recommend that Trump block it. Deals also often unravel if CFIUS is seen as likely to rule negatively.

Some high-profile Republicans are pushing for the investigation.

Sen. Tom Cotton (R-Ark.) applauded the probe, arguing that it’s important that the U.S. remain in control of important tech companies. Cotton and Sen. Marco Rubio (R-Fla.) recently introduced legislation that would bar the federal government from doing business with the Chinese giant Huawei, which is suspected of having ties to Beijing and many worry would thrive if Qualcomm went into decline.

Those concerns were echoed by Senate Majority Whip John Cornyn (R-Texas), who wrote to Mnuchin in late February urging him to put a halt to the Qualcomm shareholders meeting.

“We’re still gathering information and not all the facts are known yet, but I want to stress that we need to do our due diligence,” Cornyn said on the Senate floor Thursday. “We need to have a comprehensive review of this hostile takeover.”