U.S. sees national security risk from Broadcom’s Qualcomm deal: Treasury

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(Reuters) – A U.S. government national security panel said it identified potential risks that warrant a full investigation of Singapore-based Broadcom Ltd’s (AVGO.O) $117 billion bid for chipmaker Qualcomm Inc (QCOM.O), a senior U.S. Treasury official said in a letter to the companies on Monday.

Hock Tan, CEO of Broadcom, speaks on the floor of the New York Stock Exchange shortly before the opening bell in New York, U.S., February 12, 2018. REUTERS/Lucas Jackson

Some of the concerns relate to risks associated with Broadcom’s relationships with foreign entities, Aimen Mir, the Treasury’s deputy assistant secretary for investment security, said in the letter, without identifying who those parties might be.

The letter, dated March 5, was made public by Qualcomm on Tuesday. (bit.ly/2FtCesY)

The U.S. government’s Committee on Foreign Investment in the United States (CFIUS) ordered a national security review of Broadcom’s proposed deal on Sunday in an unusual move that prompted Qualcomm to delay a March 6 shareholder meeting.

The letter said that, as with every investigation, the review will look at the potential risk of an unnamed “actor” working through Broadcom to hurt U.S. national security, adding that the bulk of CFIUS’ concerns were classified.

CFIUS, made up of representatives from the Departments of Defense, State, Justice, Treasury, Commerce, Energy and Homeland Security, assesses proposed foreign deals to purchase U.S. assets to ensure they do not harm national security.

The inter-agency body, led by the Treasury, rarely looks at mergers before companies have clinched an agreement, highlighting the urgency of U.S. concerns about safeguarding semiconductor technology and casting doubt on the deal’s success.

The U.S. government is concerned that Chinese companies, including the big network equipment and mobile phone maker Huawei Technologies [HWT.UL], will take advantage of any openings to take the lead in the next generation mobile phone networks known as 5G.

“A shift to Chinese dominance in 5G would have substantial negative security consequences for the United States,” Mir’s letter said.

A source familiar with CFIUS’ thinking told Reuters on Monday that if Broadcom acquired Qualcomm, the U.S. military was concerned that within 10 years “there would essentially be a dominant player in all of these technologies and that’s essentially Huawei.”

Reporting by Supantha Mukherjee in Bengaluru and Chris Sanders in Washington D.C.; Editing by Bill Rigby