In our earlier research, we have repeatedly said that the Company showed up at Qualcomm’s door with nothing but chutzpah ( Broadcom Limited – Staring at Defeat ) and that culturally the two companies were unlikely to be compatible given different histories and approach to business development, product design and delivery and access to intellectual property ( Qualcomm Inc. – Throws Down the Gauntlet ). If one were to pay attention to the correspondence between the CFIUS and the Company, it is evident that CFIUS officials were riled by Broadcom’s approach to their directives. We want to reproduce three statements from the letter which is attached as a PDF file for those that are interested in reading the full view expressed by CFIUS to the Company.

CFIUS states that:

“Broadcom took a series of actions in violation of the Interim order. …. Specifically …

1. Those actions include filing an ex parte originating summons with a court in Singapore on March 6, 2018

2. Seeking and participating in a court proceeding in Singapore on March 9, 2018; and

3. Filing a definitive proxy statement with the U.S. Securities and Exchange
Commission … on March 9, 2018”.

In response, Broadcom said the following in a release dated March 12,2018, i.e. today.

Broadcom’s plan to redomicile is and has been a matter of public record since last November and has been addressed multiple times in recent months. This plan was first announced in the White House when Hock Tan, Broadcom’s President and Chief Executive Officer, had the honor to announce the plan alongside President Trump in the Oval Office on November 2, 2017. … 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.”

This is indeed troubling because an agency of the U.S. government is explicitly citing violations of a directive issued to a prospective acquirer. It is perplexing that the management of the Company mistook a photo-op with the President as harbinger of U.S. policy. That brings us back to our earlier research which said that perhaps the Company is not serious about acquiring Qualcomm because in our opinion the statement released by the Company is inexcusable.

It is not that the CFIUS was unaware of the Company’s intention to redomicile to the U.S.; they would have seen the Presidential press conference with CEO Hock Tan. It is the fact that CFIUS officials directed Broadcom to provide a “five business day’s notice” if the Company “took action towards redomiciliation in the United States.” As cited by CFIUS Broadcom failed to do so.

We are neither legal experts nor advisors to Broadcom. However, we are cognizant of the importance of diktats from regulatory agencies or other government agencies, and we are aware that one cannot be seen as not abiding by any directive, in an unusually sensitive situation that the Company was involved in. In this instance, it was imperative that Broadcom was recognized as pristine in its conduct, particularly given that significant value creation hinged on the Company being regarded above reproach.

Alas, that was not to be!

We were of the view that there is a less than 10% chance of CFIUS withholding approval ( Broadcom Limited – A Reprieve for Qualcomm Inc. ). However, that was contingent upon Broadcom dotting it i’s and cross its t’s.

March 15 earnings call of Broadcom Limited should be interesting. Bullish investors should pay particular attention to the tone of that call.