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How Foreign Is Broadcom? A Tale of the Tape: DealBook Briefing

The logo of Qualcomm.Credit...Yves Herman/Reuters

Good Wednesday. Here’s what we’re watching:

• How foreign is Broadcom?

• The markets are worried that free trade has no voice at the White House.

• The E.U. formally announced its plan for any Trump tariffs.

• Chuck Rosenberg, a former senior official at the Justice Department, is going to Crowell & Moring.

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As the Trump administration weighs whether to block the chip maker’s $117 billion takeover bid for Qualcomm, a central issue is how much of a threat the deal is to national security. In an effort to assuage concerns, Broadcom pledged Wednesday to increase research spending on 5G wireless tech and to create a $1.5 billion fund to invest in training engineering talent in the United States to help allay those concerns.

The Committee on Foreign Investment in the United States, or Cfius, has jurisdiction over the transaction because Broadcom is currently incorporated in Singapore, where the company has been legally headquartered since 2005. But the company is preparing to move its corporate base to the United States, in part to avoid being considered a foreign acquirer.

Beyond Broadcom’s legal domicile, though, is it a substantially foreign company? Let’s take a look at a number of factors.

Sales

First, a caveat: Both Broadcom and Qualcomm categorize where their revenue based on the location to which the chips that go in the smartphones and other devices are delivered. As Qualcomm puts it:

“China revenues could include revenues related to shipments of integrated circuits to a company that is headquartered in South Korea but that manufactures devices in China, which devices are then sold to consumers in Europe and/or the United States.”

According to Broadcom’s most recent annual report, roughly 7 percent of its $17.6 billion in net revenue comes from the United States. The single biggest market for the company is China, which accounted for roughly 54 percent of its net revenue. “Other” markets made up nearly 38 percent.

As a point of comparison, 2 percent of Qualcomm’s revenues come from the United States. Some 65 percent of its revenue comes from China, including Hong Kong, according to its most recent annual report.

Employees

Roughly 55 percent of Broadcom’s employees are based in North America, according to the annual report. About 38 percent are in Asia, and the remainder work in Europe, the Middle East and Africa. About 52 percent of Qualcomm’s employees are based in the United States.

Broadcom also said that about 62 percent of the square footage of its properties, both owned and leased, are in the United States. By contrast, Qualcomm has roughly 56 percent of its owned and leased facilities in the United States.

Corporate governance

The vast majority of Broadcom’s board are American citizens who live in the United States. That includes Jim Diller, its chairman; Henry Samueli, the founder of the original Broadcom; and Ken Hao, the Silver Lake partner who has backed Broadcom for years.

Hock Tan, the company’s C.E.O., immigrated to the United States to attend M.I.T. and then Harvard Business School and lives in the San Francisco Bay Area. He became a naturalized citizen of the United States in 1990.

Broadcom does have one Singaporean director, Check Low, to comply with Singapore’s corporate rules.

Ownership

The two companies share 11 of their top 20 shareholders, including big index fund managers like BlackRock and Vanguard.

— Michael de la Merced

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Credit...Brendan Smialowski/Agence France-Presse — Getty Images

President Trump’s top economic adviser finally announced he would leave, in a sign that the nationalists have won the White House debate on tariffs.

The news prompted Tom Nides, Morgan Stanley’s vice chairman, to utter aloud, “Oh, that’s a problem.”

More on Mr. Cohn’s decision from Kate Kelly and Maggie Haberman of the NYT, who broke the news yesterday:

It leaves Mr. Trump surrounded primarily by advisers with strong protectionist views who advocate the types of aggressive trade measures, like tariffs, that Mr. Trump campaigned on but that Mr. Cohn fought inside the White House. Mr. Cohn was viewed by Republican lawmakers as the steady hand who could prevent Mr. Trump from engaging in activities that could trigger a trade war.

Potential replacements, according to Axios: Peter Navarro, the trade adviser who pushed for the tariffs; Kevin Warsh, the former Fed governor; Shahira Knight, a deputy of Mr. Cohn’s; and the pro-free-trade economist Larry Kudlow. But Axios says that there’s no official succession plan, and that other members of the National Economic Council will likely leave (We can rule out Austan Goolsbee.)

The timing: CNBC notes that Mr. Cohn’s announcement came hours after Mr. Trump said that “everyone wants to work in the White House.” It also came after Mr. Trump tweeted, “There is no Chaos, only great Energy!”

Peter Eavis’s take: Even if there is no plunge, now is a moment for investors to make up their minds about populism.

Critics’ corner: The WSJ editorial board said Mr. Cohn’s departure was “a significant blow” to Mr. Trump’s presidency. The NYT editorial board said Mr. Cohn had done “an awful job,” which still probably represented “the high-water mark for economic thinking” for this White House. And his former boss, Lloyd Blankfein, said he had served his country “in a first class way.”

The Federal Reserve has helped support the economy when a big event – fears for the survival of the euro, fiscal standoffs in Congress, oil price declines — threatens to dampen growth. But will the Fed have the same leeway to stimulate the economy if rising trade tensions start to weigh on the growth prospects of the United States?

Maybe not.

The Fed had ample room to keep its policy loose when inflation was dormant for years after the financial crisis. But now that inflation seems to be waking up, the Fed might not have the same flexibility. Indeed, amid the current trade tumult, investors still seem to believe that inflation is moving higher. This can be seen in a closely watched bond market indicator flagged this morning by Lisa Abramowicz of Bloomberg.

One outcome: The concerns about a trade war may end up weighing on growth and causing the inflationary pressures to abate. That would give the Fed more room to maneuver, perhaps allowing it to raise interest rates more slowly.

But it could get messy. Trade tariffs, applied broadly, could push up the prices of many goods at a time when the Fed has to grapple with the enormous fiscal stimulus that Congress just enacted.

- Peter Eavis

Federal Reserve governor Lael Brainard became the latest policymaker to express confidence that inflation would hit the Fed’s target of 2 percent this year.

“Mounting tailwinds at a time of full employment and above-trend growth tip the balance of considerations in my view. With greater confidence in achieving the inflation target, continued gradual increases in the federal funds rate are likely to be appropriate.”

What are those tailwinds?

“The most notable tailwind is the shift in America’s fiscal policy stance from restraint to substantial stimulus in an economy close to full employment.”

Ms. Brainard’s comments are notable because she had previously argued vocally for caution in tightening monetary policy.


Major stocks indexes in the United States are down a bit. The Dow Jones industrial average and the S.&P. 500 are both off just over 0.5 percent. Futures fell more than 1 percent in the hours after the news broke.

Despite the muted response, a number of analysts are warning that investors need to prepare for the possibility that more protectionist/populist policies are on the way. Here’s a look at some reactions:

Joe Brusuelas, the chief economist at RSM US, wrote:

“The resignation of Gary Cohen from his position at the White House will likely have no to little impact on policymaking out of the West Wing or the bureaucracy. His likely replacement be it Peter Navarro or Larry Kudlow will still be subject to the whims of the occupant of the oval office and a prisoner of the internal inconsistencies of the Trump economic agenda: that it could debt finance a $1.5 trillion dollar tax cut (with a $750 billion fudge factor) and then throw an additional $320 billion in kerosene on top of the debt fueled flames without stoking rising inflation and higher interest rates that are almost certain to follow in its wake. No economic advisor, whatever their academic or professional background will be able to liberate the economy from such internal inconsistencies given the whim like policy making apparatus that exists inside a chaotic White House.”

Brian Gardner and Michael Michaud, analysts at Keefe, Bruyette & Woods, wrote:

“Regardless of whether Mr. Cohn’s replacement comes from the mainstream or is an economic nationalist, investors need to realize that President Trump’s populist rhetoric on trade is real and that protectionist trade policies are more likely than not. To date, investors have been assuaged that Mr. Cohn was the “adult in the room” in an unorthodox and chaotic White House and for most economic and regulatory policy that was the case. However, we think trade policy is different and investors need to understand that the assumptions about a liberal and open global trade framework are being shredded and that the sanctions on steel and aluminum may represent a new paradigm regarding global trade.”

What does that mean? The analysts said they think the United States is more likely than not to withdraw from Nafta.

Charlie McElligott at Nomura Securities wrote:

“It still feels that collective investor mentality views this as little-more than a political ploy to galvanize Trump’s core constituency into mid-term elections, a game-theory standoff to draw-out trade concessions from China.”

But he adds:

“It does “pull forward” risk of the “Bad Trump” scenario which that market had largely “priced-out” into the “now.”

Between Feb. 12 and Feb. 22, the billionaire investor sold about $31 million of the crane maker's stock.

To some, that seemed like good timing.

Since the day before he started selling, the stock is down 20 percent. The catalyst? The Trump administration’s plans to slap tariffs on imported steel and aluminum. Manitowoc stock fell 4.8 percent on Feb. 16 when Commerce Secretary Wilbur Ross unveiled a report calling for tariffs on imported steel. The company’s shares then dropped 6 percent Thursday when President Trump announced his plan.

On Wednesday, Mr. Icahn said he had no knowledge of the Trump administration’s plans when he moved to reduce his holding. In a statement on his website, Mr. Icahn said:

“We don’t generally comment on rumors, but the recent media speculation regarding our sale of Manitowoc stock calls for a response. We state for the record: Any suggestion that we had prior knowledge of the Trump administration’s announcement of new tariffs on steel imports is categorically untrue. We reduced our position in Manitowoc for legitimate investment reasons having nothing to do with that announcement.”

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A steel factory in Chungcheongnam-do, South Korea. Credit...Shin Dong-Jun/Epa-Efe/Rex/Shutterstock/

The political bloc formally announced its plan to counterattack, including taxing American goods like Harley-Davidsons and bourbon and filing a challenge with the World Trade Organization.

Meanwhile, allies continued to fret. South Korea worries that tariffs will complicate its efforts to denuclearize the North. Christine Lagarde of the I.M.F. warned of the perils of a trade war. And fellow Republicans in Washington continued to lobby the White House.

The aluminum industry doesn’t want tariffs either

In a letter to the White House yesterday, the Aluminum Association (which represents both U.S. and foreign suppliers) said that the move would be a bad idea.

Complaints can be heard around the sector. The C.E.O. of Novelis, a big aluminum producer, criticized Commerce Secretary Wilbur Ross for saying predictions of price increases were “hysteria.” And DowDuPont said it might now build plants in Canada or Argentina rather than the U.S.

Bayer said it is in exclusive talks with BASF about the sale of its entire vegetable seeds business as the German chemicals multinational, seeks to win approval for its $56 billion deal for Monsanto from European regulators.

European antitrust regulators opened an in-depth investigation into Bayer’s planned acquisition of Monsanto, its American agribusiness rival, in August. European competition authorities are expected to wrap up their inquiry by early next month.

The proposed combination is the latest in a series of mergers in the rapidly consolidating seed and agrochemical sector.

Bayer previously agreed to sell selected businesses with its Crop Sciences unit to BASF for 5.9 billion euros, or about $7.3 billion at current exchange rates, in October. Both deals, if one were to be reached on the vegetable seeds business, would be subject to the Monsanto transaction closing.

— Chad Bray

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Credit...Alex Wong/Getty Images

Mr. Rosenberg had a long career in government: twice U.S. attorney, he’s been a longtime senior official at the Justice Department (including as chief of staff to James Comey) and acting head of the Drug Enforcement Administration. Now he is heading to Crowell and Moring as senior counsel in the firm’s white-collar and regulatory-enforcement practice.

Philip Inglima, the chairman of Crowell, said of Mr. Rosenberg in a statement:

“ Through his experience operating at the highest levels of the Justice Department, he gained unsurpassed insight into the government’s enforcement priorities and processes.”

• Some Senate Democrats joined with Republicans to send an overhaul of Dodd-Frank to the floor, setting up a battle over loosening banking regulations. (NYT)

• The former C.E.O. of a payday lender investigated by the Consumer Financial Protection Bureau asked Mick Mulvaney, the regulator’s acting director, for a senior position there. (AP)

• An adviser to the U.A.E. with ties to associates of President Trump is cooperating with Robert Mueller, suggesting that the special counsel is looking into whether Emirati money was funneled into his campaign, unnamed sources say. (NYT)

• The adult-film star Stormy Daniels asserted in a lawsuit that the president never signed a nondisclosure agreement about the affair she says they had. (NYT)

• The Justice Department has sued California over its sanctuary city policies. (NYT)

• Smith & Wesson’s parent company said it was wary of smart-gun proposals. (WSJ)

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The logo of Qualcomm.Credit...Yves Herman/Reuters

It’s 5G, the superfast wireless standard that Washington, Beijing and business think will be transformative. So important is 5G that Cfius disclosed serious national security concerns about Broadcom buying Qualcomm.

More from Cecilia Kang and Alan Rappeport of the NYT:

“It is the new paradigm,” said Paul Triolo, head of global technology policy at Eurasia Group, a geopolitical risk consulting company. “That implies technologies with 5G, artificial intelligence, biotech and automation are now considered more sensitive and part of a national innovation base that needs to be protected.”

As Michael points out, however, much of Cfius’s letter to the two companies focused on how Broadcom could manage Qualcomm if it took over. Its “private equity” cost-cutting could lead to Qualcomm reducing investment in R. & D. and ceding its 5G lead to Huawei of China, according to the letter.

Broadcom said this morning that it was committed to advancing 5G and that it is an American company in everything but legal headquarters.

More on Huawei: It’s the Chinese tech company that Washington fears the most, even if other companies don’t.

Another take, from DealBook’s friend Steven Davidoff Solomon:

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Credit...Regis Duvignau/Reuters

The onetime king of messaging devices has accused Facebook of violating its patents in Facebook Messenger, Instagram and WhatsApp.

More from Ahmed Farhatha of Reuters:

Litigation over patent infringement is part of BlackBerry chief executive John Chen’s strategy for making money for the company, which has lost market share in the smartphone market it once dominated.

Facebook says that it will fight the lawsuit and added, “BlackBerry’s suit sadly reflects the current state of its messaging business.”

Today in virtual currencies: Coinbase is creating an index fund including Bitcoin, Bitcoin Cash, Ether and Litecoin. A federal judge ruled that the Commodity Futures Trading Commission can regulate digital money. And rich people are investing in Bitcoin without understanding it.

The tech flyaround

• Conservatives are increasingly targeting tech giants: The man behind “Clinton Cash” is producing a documentary on Facebook and Google. (NYT)

• Uber’s self-driving trucks have been making deliveries around Arizona, but they’re not ready to replace human drivers. And European automakers are preparing for an electric future, but skepticism remains.

• Scientists are trying to figure out how machines learn on their own. The vast majority of Americans expect artificial intelligence to lead to job losses in the coming decade, but, like bricklayers, few see it coming for their own position.

• The idea of Facebook paying us for our puppy pictures may sound crazy, but it’s gaining momentum. (NYT)

• Data centers have helped revitalize cities like Prineville, Oreg. (NYT)

• UiPath, an automation software company, has raised $153 million in a Series B round of funding led by Accel, CapitalG and Kleiner Perkins. (UiPath)

• HQ Trivia raised new funding at a $100 million valuation, and its co-founder, Colin Kroll, apologized for his behavior when he worked at Vine. (Recode)

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Credit...Earl Wilson for The New York Times

The investor group that had walked away, only to come back, took a look at the company’s finances and got a nasty surprise about its debt — up to an additional $65 million in liabilities, according to the NYT.

Maria Contreras-Sweet, who was leading the investor group, said that it would “consider acquiring assets that may become available in the event of bankruptcy proceedings.”

The Weinstein Company’s response: “The company has been transparent about its dire financial condition.”

The deals flyaround

• CVS Health sold $40 billion of bonds, the biggest such deal in two years, to help pay for its takeover of Aetna. (WSJ)

• J.M. Smucker called off its deal to buy the Wesson cooking oil brand after federal regulators sued to block it. (WSJ)

• International Paper’s bid for the European cardboard-box maker Smurfit Kappa is worth about 8.64 billion euros, or $10.7 billion. (FT)

• Spotting an M&A dud: the bigger the deals, the harder they fall. (Bloomberg)

• A proposed change in Japan’s tax law could encourage more all-stock deals. (FT)

• UnitedHealth is among the bidders for a unit of Envision Healthcare, a health services provider under pressure from activist investors, unnamed sources said. (Bloomberg)

• S.&P. Global is buying Kensho Technologies, which provides A.I.-based data analysis to financial institutions, for $550 million. (WSJ)

• Penske Media, which owns Variety and Deadline, has acquired SheKnows Media to expand its female audience. (WSJ)

• The story behind the fall of the British electronics retailer Maplin. (Coppola Comment)

• WeWork is buying the digital marketing and advertising company Conductor. (Recode)

• Singapore’s Temasek and GIC are close to a deal for the parent company of the Salt Bae’s steakhouse chain, which values the business at $1.5 billion. (FT)

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Credit...Fernando Alvarado/European Pressphoto Agency

• Airbnb has named Greg Greeley, an Amazon executive who helped create Prime, as the head of its homes business. (Airbnb)

• Royal Bank of Scotland agreed a $500 million settlement with New York State over the mis-selling of residential mortgage-backed securities before the financial crisis. (FT)

• Red Granite Pictures, which produced “Wolf of Wall Street,” agreed to pay $60 million to settle claims it financed the film with money siphoned from a Malaysian state investment fund. (Bloomberg)

• UnitedHealthcare, one of the largest U.S. health insurers, said it would stop keeping millions of discounts it gets from drug companies and share them with its customers. (NYT)

• The N.Y.S.E. agreed to pay $14 million in penalties to settle regulatory charges for multiple violations related to high-profile events that disrupted trading. (FT)

• A new book chronicles how American businesses won their civil rights. (NYT)

• Synthetic identity fraud, using fictional names and unassigned social security numbers, is one of the fastest growing forms of identity theft. (WSJ)

• Billy McFarland, the entrepreneur who created Fyre Festival, admitted that he had defrauded investors. (WSJ)

• Multinationals have made such extensive use of Ireland for funneling royalty payments that they made up about 23 percent of the country’s annual gross domestic product, according to the European Commission. (FT)

• “The Big Picture” tells the story of movie and television executives whose careers were destroyed or made as entertainment went digital. (NYT)

We’d love your feedback. Please email thoughts and suggestions to bizday@nytimes.com.

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