Qualcomm Broadcom descends from soap-opera to farce

One day the attempted acquisition of Qualcomm by Broadcom will be taught at business schools as an example of what happens when M&A goes bad.

The last time we checked in with these two wacky chippies we concluded the whole saga was just getting silly, after Broadcom decided to reaffirm its commitment to the acquisition by lowering its bid. Against all odds and reason, after taking a day or two off for MWC, the two of them have managed to raise the silly stakes by a further order of magnitude.

At the start of last week Broadcom issued a press release entitled ‘Broadcom’s Attempts at Genuine Engagement Met with Qualcomm’s “Engagement Theater”’. The release basically accused Qualcomm of acting in bad faith throughout the process, which is exactly the same claim as had been thrown in the other direction. A specific concern was that Qualcomm was trying to delay its AGM, at which Broadcom hoped to get a bunch of its people elected to the board. The AGM is due to take place around 24 hours from now.

Today Broadcom sent out another release entitled ‘Broadcom Disappointed Will of Qualcomm Stockholders to be Deferred’. It stated that ‘Qualcomm secretly filed a voluntary request with CFIUS [Committee on Foreign Investment in the United States] to initiate an investigation, resulting in a delay of Qualcomm’s Annual Meeting 48 hours before it was to take place.

The CFIUS is probably one of the organisations most responsible for things like Huawei being prevented from doing much business in the US. As we know the US has moved in a more isolationist direction under the Trump administration and Qualcomm is presumably aware of this. So, given the apparent hostility of the Qualcomm board to this bid it’s not too surprising to see them grass Singapore-based Broadcom to the CFIUS to further obstruct it.

Having said that Broadcom does seem to have some genuine grievance regarding the timing and secrecy of Qualcomm’s move. ‘It is critical that Qualcomm stockholders know that Qualcomm did not once mention submitting a voluntary notice to CFIUS in any of its interactions with Broadcom to date, including in the two meetings on February 14, 2018 and on February 23, 2018,’ says the release. ‘This can only be seen as an intentional lack of disclosure – both to Broadcom and to its own stockholders. This brings Qualcomm’s “engagement theater” to a new low.’

A further legitimate grievance comes from Broadcom’s insistence that it’s mainly American anyway (Broadcom is itself American but was acquired by Avago in 2015) and has made a public commitment to redomicile to the US anyway. So with that in mind why is the CFIUS poking its nose in anyway, especially since it presumably cleared the Broadcom acquisition in the first place, not to mention the Brocade acquisition. Broadcom concludes with its now familiar narrative that the Qualcomm board doesn’t have the best interests of its shareholders in mind.

Inevitably Qualcomm has published a response to all this Broadcom moaning. ‘Broadcom Limited’s response to the order from the CFIUS is a continuation of its 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,’ it said.

‘Broadcom’s dismissive rhetoric notwithstanding, this is a very serious matter for both Qualcomm and Broadcom. Broadcom’s claims that the CFIUS inquiry was a surprise to them has no basis in fact. Broadcom has been interacting with CFIUS for weeks and made two written submissions to CFIUS.

‘In compliance with the CFIUS order, Qualcomm will delay its Annual Meeting of Stockholders and election of directors for at least 30 days so that CFIUS can fully investigate Broadcom Limited’s proposal to acquire Qualcomm.’

It’s hard to know who to believe here, but it probably doesn’t matter. The whole thing has degenerated into a public bitch-fest that is downright toe-curling. Unless the CFIUS blocks the deal the only people whose opinions matter here are Qualcomm shareholders. While neither board is coming out of this well, it’s hard to avoid the impression that the Qualcomm board it trying to rig the process in its favour and it runs the risk of alienating its shareholders in this sort of thing keeps up.