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TechBroadcom

How Broadcom Stock Was Hit by a Fake National Security Scare

By
Aaron Pressman
Aaron Pressman
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By
Aaron Pressman
Aaron Pressman
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October 10, 2018, 2:00 PM ET
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The bizarre specter of national security questions raised against American microchip maker Broadcom took an even stranger turn on Wednesday, when a fake memo circulated on Capitol Hill in Washington purportedly challenging the company’s pending $19 billion takeover of CA Technologies.

Stocks of both companies tumbled before Broadcom issued a statement calling out the forged document. Shares of Broadcom dropped as much as 4% and CA’s shares were off as much as 5% after news broke of possible national security objections to the deal. Broadcom’s $117 billion bid for Qualcomm was blocked by a national security review earlier this year, prompting CEO Hock Tan to turn his sights on CA Technologies.

But by early Wednesday afternoon, the stocks started to recovery after Broadcom issued its statement calling out the forgery. “We have been informed by [Department of Defense] officials that this memo is in fact a forged document,” Broadcom said. “We have received [antitrust] clearance and the approval of CA shareholders, and we have a clear path to completing the transaction in the fourth calendar quarter of 2018.”

In mid-afternoon trading, Broadcom (AVGO) and CA (CA) shares were down 2%.

The initial story of the fake memo and lawmakers seeking a security review of the CA deal prompted longtime chip industry analyst Stacy Rasgon at Bernstein Research to issue a report titled: “We’ve officially crossed over into ‘nuts.'” Both companies in the merger “are U.S. companies in deed as well as name (and both have the vast majority of employees and assets in the U.S.,” Rasgon wrote in the report. “In our opinion CFIUS involvement in [Broadcom-CA] would be, frankly, nuts.”

The forgery was the latest in a series of questionable attacks on Broadcom and its CEO over national security issues.

The Qualcomm takeover was blocked by President Trump in March after being opposed by the U.S. Treasury’s Committee on Foreign Investment, or CFIUS, which has the limited authority to review acquisitions of U.S. companies like Qualcomm by foreign buyers. The negative recommendation followed an intense lobbying campaign by Qualcomm management, which opposed the merger with Broadcom and said the deal would result in Tan gutting its cutting edge work on 5G wireless technology in order to cut costs.

Even though CEO Tan had announced he was moving Broadcom’s legal residence back to the United States at a White House event in November, 2017, the company was technically still domiciled in Singapore when it bid for Qualcomm, opening the door to a CFIUS review. Broadcom, called Avago Technologies until 2015, originally incorporated in Singapore to save on U.S. taxes when it was spun off from former Hewlett Packard unit Agilent in 2005.

CEO Tan is also an unlikely target of national security concern. He was born in Malaysia but came to the United States nearly 50 years ago to attend MIT. After graduating with a degree in mechanical engineering, he got an MBA from Harvard and did stints at American stalwarts General Motors (GM) and Pepsi [fortune-stock symbol=”pep”, before heading to California to join the tech industry. He became a U.S. citizen in 1990. Over the course of his career, Tan had also held a top secret security clearance and worked on U.S. military hardware projects.

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