It’s been dubbed “the ultimate regulatory bazooka” by one financial analyst, and right now it’s pointed at the biggest proposed takeover in US tech history.
The Committee on Foreign Investment in the United States, or CFIUS (pronounced SIF-ee-us), is reviewing Singapore-based Broadcom’s $117 billion bid for American chipmaker Qualcomm. If it deems the resulting combination undesirable, the deal will probably be blocked.
CFIUS, which is charged with deciding whether takeovers of US businesses by foreign companies pose a threat to national security, can scrutinize deals in any industry. But over the past few years, it’s been looking at more and more tech deals—especially those connected to China.
We took a look at how CFIUS works, and why Broadcom faces an uphill battle to get its deal approved.
Who’s around the committee table?
A lot of Washington bigwigs. CFIUS is chaired by the Treasury secretary and includes the heads of a number of government agencies, including the Departments of Defense, Homeland Security, Commerce, and Energy, as well as the US trade representative and the head of the White House’s Office of Science and Technology Policy. The committee also receives input from intelligence agencies and other bodies.
How busy has CFIUS been?
Lately? Very. The committee reviewed 172 cases in 2016, up from 97 in 2013. (Official 2017 figures aren’t available, but one estimate puts the figure close to 250.) “CFIUS is taking a far broader interest in the kinds of security-related deals it will consider,” says Edward Shapiro, a lawyer at Latham & Watkins. In January, for instance, Chinese fintech giant Ant Financial dropped its bid for America’s MoneyGram after the committee rejected its plans for handling sensitive personal data of the US finance company’s customers.
What’s the review process?
An initial review can last up to 30 days, and a further 45 days can be added for a deeper investigation. If the committee doesn’t like what it sees, it can recommend that the president veto a deal.
How often does CFIUS recommend a veto?
Very rarely. Companies typically try to assuage CFIUS’s concerns, and ditch deals if they can’t. Of the four presidential vetoes issued between 1990 and 2017, half were in the past two years. Both involved US semiconductor businesses and Chinese bidders: in 2016, Barack Obama blocked a Chinese consortium’s offer for Aixtron, a German chipmaker with a US subsidiary, and last year Donald Trump vetoed a bid by a China-backed investor for Lattice Semiconductor.
Will Broadcom be able to sway CFIUS in its favor?
That’s going to be really tough to do. The committee’s worried that if Broadcom’s bid goes ahead, America could fall behind in new, super-fast 5G wireless networks, ceding leadership in the field to Chinese firms. Qualcomm has invested heavily in 5G technology, but Broadcom has a reputation for squeezing R&D spending.
The latter has pledged to pump $1.5 billion into training engineers in America, and to make an annual investment of $3 billion in R&D and $6 billion in manufacturing. It also says it won’t sell any of Qualcomm’s critical national security assets to foreign buyers. But pledges may not be enough to convince CFIUS, which is also focused on the fact that Qualcomm’s a key chip supplier to the US defense industry.
Could the ultimate regulatory bazooka become even more powerful?
Yes. CFIUS is currently limited to reviewing deals that lead to total or majority control of a US company. Congress is considering draft legislation that would also enable it to review some minority stakes taken in US firms working in strategic tech sectors. That would give the committee an even bigger influence over the future shape of America’s tech landscape.