By Greg Roumeliotis
March 5 (Reuters) - A U.S. national security panel's unusualdecision to review Singapore-based Broadcom Ltd's AVGO.O $117billion hostile bid for smartphone chipmaker Qualcomm Ltd QCOM.O illustrates an expanding focus on the competitivenessof the U.S. semiconductor industry amid advances by China,regulatory experts said.
The secretive panel, called the Committee on ForeignInvestment in the United States (CFIUS), has scuppered severalattempts by Chinese technology companies to acquire U.S.chipmakers in the last 12 months over concerns about thetransfer of potentially sensitive technology.
Broadcom is not a Chinese company, and has pledged to moveits domicile from Singapore to the United States, arguing thiswill makes its acquisition of Qualcomm not covered by CFIUS.However, many of Qualcomm's rivals, including HuaweiTechnologies Co Ltd HWT.UL , are Chinese.
Huawei is forging closer commercial ties with bigtelecommunication operators across Asia, the Americas andEurope, putting the company in prime position to lead the globalrace for wireless 5G networks, despite U.S. allegations it posesa security threat. views Qualcomm as a prized U.S. asset in thedevelopment of 5G wireless technology, which allows for thetransmission of data at very fast speeds. It wants to make sureQualcomm does not lose its status as a dominant player inwireless chip technology, according to a source familiar withthe panel's thinking. a result, Broadcom's business plan for Qualcomm,including any divestitures it plans in order to appeaseantitrust regulators, will be scrutinized by CFIUS, lawyers whoadvised companies on their CFIUS applications said.
"This shows how indirect exposure to China is a frequent,but under-noticed, source of perceived national security risk,"said Mario Mancuso, a former CFIUS member who is now a partnerat law firm Kirkland & Ellis LLP.
CFIUS' stance has toughened as U.S. President Donald Trumpseeks to pressure China to help tackle North Korea's nuclearambitions and be more accommodative on trade and foreignexchange issues.
Unfilled political vacancies in several governmentdepartments and agencies have also made it harder for CFIUS toapprove deals.
Canyon Bridge Capital Partners LLC, a U.S.-based privateequity firm funded by the Chinese government, saw its $1.3billion acquisition of U.S. chipmaker Lattice Semiconductor Corp LSCC.O collapse last year after it was blocked by CFIUS, arejection subsequently upheld by Trump. month, U.S. semiconductor testing company Xcerra Corp XCRA.O said CFIUS had blocked its $580 million sale to aChinese state-backed semiconductor investment fund. reported last week that CFIUS had begun looking atBroadcom's bid as pressure grew from politicians, includingsenior Republican U.S. Senator John Cornyn. is a leader in 5G technology, which is going to bethe new standard in the future. And, as we've seen, some of ourinternational rivals, like China, have been incrediblyaggressive and strategic," Cornyn said on Monday. He hasproposed legislation to tighten CFIUS' scrutiny of deals.
PROXY CONTEST
CFIUS' intervention was unusual in that the panel typicallyreviews signed deals. However, Qualcomm has been resistingBroadcom's overtures, prompting the latter to nominate sixdirectors to Qualcomm's 11-member board at its shareholdermeeting. CFIUS on Sunday ordered Qualcomm to postpone itsshareholder meeting, which was scheduled for Tuesday, for amonth.
Qualcomm filed a voluntary request for CFIUS to reviewBroadcom's bid on Jan. 29. CFIUS rules allow a company facing anunsolicited takeover bid to request a CFIUS review, so that itsboard of directors can better assess the regulatory risk of adeal.
"The rules say that one party alone could approach CFIUS andfor a review," said McDermott Will & Emery LLP regulatory lawyerDavid Levine.
Such circumstances are few and far between. Miner Rio TintoPlc RIO.L asked CFIUS for a review in 2008 after facing ahostile $150 billion bid by BHP Billiton (LON:BLT) Ltd BHP.AX ,according to a source familiar with the matter. CFIUS allowedthe bid, but BHP subsequently walked away from the deal in theaftermath of the financial crisis.
Broadcom struggled to win CFIUS approval to buy BrocadeCommunications Systems late last year. In the end, that approvalcame just weeks after Broadcom Chief Executive Officer Hock Tanannounced in an Oval Office ceremony with Trump that Broadcomwould bring its headquarters to the United States.