Calls for CFIUS Review of Broadcom, Qualcomm 'Feel Very Weak,' Analyst Says

While Qualcomm Inc. (QCOM) and Broadcom Ltd. (AVGO) prepare for a showdown at the former's March 6 annual meeting, tension is brewing in a different venue--Washington.

As the Deal reported Wednesday, Rep. Duncan Hunter, R-Calif., and Sen. John Cornyn, R-Texas, are pressing the government's Committee on Foreign Investment in the U.S., or CFIUS, to review the deal.

The calls for a preemptive review of Broadcom's bid for Qualcomm break with convention. The Trump administration has already shaken up preconceptions about merger reviews, however.

"We are not lawyers (or policy wonks), and don't know if CFIUS has any real jurisdiction in the current situation, and the cases as laid out feel very weak to us (but politics is politics, so we can't say they won't find some way either)," Bernstein Research analyst Stacy Rasgon wrote in Thursday note.

Shares of Qualcomm closed down less than 0.1% at $64.96 on Thursday, well below Broadcom's hostile bid of $79 per share. Meanwhile, Broadcom dropped 1.3% to $243.31.

Hunter, who is under FBI investigation for misuse of campaign funds, represents a district including Qualcomm's hometown of San Diego. The Congressman's letter "could have been better researched," Rasgon suggested. "It indicates Broadcom's Brocade deal is still under CFIUS review (this deal has, of course, already closed)," he wrote. 

Both Hunter and Cornyn raise concerns about Singapore-based Broadcom's connections to China. President Trump heralded the company's announcement that it would change its domicile to the U.S. by early May, however. If Broadcom does move to the U.S. the issues that CFIUS would review are theoretically moot.

Coryn's letter suggested Broadcom and other foreign companies could take control of companies through proxy fights, providing an end run around CFIUS.

Broadcom has nominated six directors and would control Qualcomm's 11-seat board if its full slate wins. Even if it obtains a minority block, the company would have a significant voice within Qualcomm.

Cornyn's view of the takeover battle is "perhaps a more interesting take," Rasgon wrote. 

While the CFIUS review would be unconventional, the Trump administration does not always follow Washington protocol. 

AT&T Inc. (T) , Time Warner Inc. (TWX) and many industry analysts thought that antitrust precedent would accommodate their vertical merger. After all, the deal is in the mold of Comcast Corp.'s (CMCSA) purchase of NBCUniversal in 2011. 

Yet, the trial over a Department of Justice lawsuit to block the Time Warner deal starts on March 19.  A group of senior Democrats in the House requested that Attorney General Jeff Sessions provide documents and emails related to the suit earlier, suggesting that politics and Trump's "manifest hatred" of CNN could underlie the Justice suit.

Qualcomm and Broadcom have been waging a PR war ahead of the March 6 shareholder meeting. For the next week or so, Washington appears to be a new front in the battle.

-Ron Orol contributed to this report.

Editor's note: This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.

Jim Cramer and the AAP team hold positions in Broadcom and Comcast for their Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AVGO or CMCSA? Learn more now.