The “weirdest acquisition ever” – Broadcom's $19bn proposed takeover of CA Technologies – ran into a rather strange road-bump this week: a fake US military memo passed around American politicians on Capitol Hill.
That bogus missive – apparently signed off by the Department of Defense – asserted that the acquisition faced a probe by the US Treasury's committee on foreign investment regarding national security concerns with the biz gobble, which was announced in July.
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That sent share prices of both companies into a brief dive, with Broadcom shedding 2.9 per cent and CA down 2.3 per cent. Even as a rumor, as Stacy Rasgon of Bernstein Research put it in an advisory note to investors, the idea was “nuts” because Broadcom and CA are US companies with the majority of their personnel in America.
The US Department of Defense emitted a statement that read: “Our initial assessment is that this is likely to be a fraudulent document.” Uncle Sam's financial watchdog the SEC, and Justice Department prosecutors, are likely to investigate whether the fake memo was an attempt to manipulate Broadcom and CA stock prices.
Broadcom also scotched the missive in this two-paragraph announcement on Wednesday to the NASDAQ stock exchange:
We have learned that a fraudulent memo purported to be signed by the US Department of Defense ("DoD") is circulating among Senators and members of Congress referencing the possible need for review of Broadcom's acquisition of CA Technologies (NASDAQ: CA) by the Committee on Foreign Investment in the United States ("CFIUS"). We have been informed by DoD officials that this memo is in fact a forged document.
Broadcom and CA Technologies are both American companies, and there is no basis in fact or law for CFIUS review of our pending transaction. We have received HSR clearance and the approval of CA shareholders, and we have a clear path to completing the transaction in the fourth calendar quarter of 2018.
Before Broadcom's statement hit wide circulation, Senator Rand Paul (R-KY) appeared to echo the sentiments in the fake memo, urging Treasury officials to investigate the takeover on national security grounds.
His letter to Treasury Secretary Steven Mnuchin cited CFIUS's recommendation earlier this year against the proposed Broadcom/Qualcomm merger.
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“Simply because Broadcom recently moved its domicile to the United States does not mean that it is no longer a Chinese-controlled company or that the national security concerns previously expressed by CFIUS no longer persist. Given the circumstances surrounding the proposed takeover of CA Technologies by Broadcom, a CFIUS review is entirely appropriate”, he wrote.
Broadcom predecessor Avago was American rather than Chinese: it was spun out of HP as Agilent, bought by KKR and Silver Lake Partners, renamed Avago, and incorporated in Singapore for tax reasons. It renamed itself to Broadcom after acquiring that company in 2015. Broadcom's heritage is similarly American: it was founded by a professor and student from UCLA, Henry Samueli and Henry Nicholas, respectively, in 1991.
Apparently, the timing of Paul's letter is pure coincidence. His chief strategist Doug Stafford tweeted on Wednesday a denial that Paul's office was reacting to the memo.
“No one here has seen a memo or basing the need for CFIUS review on anything other than the obvious national security implications of this merger. Broadcom had national security issues in a CFIUS review just earlier this year and this review should be undertaken immediately”, Stafford wrote in the tweet.
A Broadcom spokesperson was not available to comment. ®