{"id":827,"date":"2018-03-05T04:44:50","date_gmt":"2018-03-05T04:44:50","guid":{"rendered":"https:\/\/www.antya.ca\/research\/broadcom-limited-undone-by-its-conduct\/"},"modified":"2026-02-17T06:27:33","modified_gmt":"2026-02-17T06:27:33","slug":"broadcom-limited-undone-by-its-conduct","status":"publish","type":"post","link":"https:\/\/www.antya.ca\/research\/broadcom-limited-undone-by-its-conduct\/","title":{"rendered":"Broadcom Limited \u2014 Undone by Its Conduct"},"content":{"rendered":"
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Broadcom Corp Cl A (BRCM US) (\u201cBRCM\u201d or the \u201cCompany\u201d) hit turbulence in its bid to acquire Qualcomm Inc (QCOM US) (\u201cQualcomm\u201d or \u201cQCOM\u201d). The Committee on Foreign Investment in the United States (\u201cCFIUS\u201d) recommended to President Trump that he block the deal. At least for once President Trump
\nagreed with his team publicly and signed an order stating that \u201cThe proposed takeover of Qualcomm by the Purchaser is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited,\u201d.<\/p>\n<\/div><\/div>\n<\/div>\n

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In our earlier research, we have repeatedly said that the Company showed up at Qualcomm\u2019s door with nothing but chutzpah ( Broadcom Limited \u2013 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. \u2013 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\u2019s 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.<\/p>\n

CFIUS states that:<\/p>\n

\u201cBroadcom took a series of actions in violation of the Interim order. \u2026. Specifically \u2026<\/p>\n

1. Those actions include filing an ex parte originating summons with a court in Singapore on March 6, 2018<\/p>\n

2. Seeking and participating in a court proceeding in Singapore on March 9, 2018; and<\/p>\n

3. Filing a definitive proxy statement with the U.S. Securities and Exchange
\nCommission \u2026 on March 9, 2018\u201d.<\/p>\n

In response, Broadcom said the following in a release dated March 12,2018, i.e. today.<\/p>\n

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Broadcom\u2019s 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\u2019s President and Chief Executive Officer, had the honor to announce the plan alongside President Trump in the Oval Office on November 2, 2017. \u2026 Given Broadcom\u2019s 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.\u201d<\/p>\n<\/blockquote>\n

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.<\/p>\n

It is not that the CFIUS was unaware of the Company\u2019s 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 \u201cfive business day\u2019s notice\u201d if the Company \u201ctook action towards redomiciliation in the United States.\u201d As cited by CFIUS Broadcom failed to do so.<\/p>\n

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.<\/p>\n

Alas, that was not to be!<\/p>\n

We were of the view that there is a less than 10% chance of CFIUS withholding approval ( Broadcom Limited \u2013 A Reprieve for Qualcomm Inc. ). However, that was contingent upon Broadcom dotting it i\u2019s and cross its t\u2019s.<\/p>\n

March 15 earnings call of Broadcom Limited should be interesting. Bullish investors should pay particular attention to the tone of that call.<\/p>\n<\/div>\n

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Neeraj Monga<\/div>\n<\/div>\n<\/div>\n
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