US President Donald Trump has just blocked a Chinese-backed equity firm from acquiring an Oregon-based semiconductor maker on Wednesday, citing security reasons for the barring.
Canyon Bridge Capital Partners is a private equity firm backed by China Venture Capital Fund Corp Ltd, which is a state-owned asset manager. Canyon Bridge had proposed to buy Lattice Semiconductor Corp for $1.3 billion. It would have been one of the largest attempt by a Chinese-backed firm if it had been approved.
In his executive order, Trump stated that the two companies “shall take all steps necessary to fully and permanently abandon the proposed transaction” within 30 days.
“Consistent with the administration’s commitment to take all actions necessary to ensure the protection of US national security, the president issued an order prohibiting the acquisition,” said Treasury Secretary Steven Mcnuchin in a statement.
The planned deal between Canyon Bridge and Lattice has gone to great lengths since it was proposed in November. Lattice has tried to convince the Committee on Foreign Investment in the US (CFIUS) to give its blessing to the transaction, but the Committee ruled to stop the acquisition.
CFIUS is a federal panel whose job is to review foreign investments in the United States for possible security threats. It can let deals pass, or suggest alterations to address security concerns. If it thinks the deal poses too much of a threat, it can recommend the president to block the transaction.
Lattice and Canyon Bridge has refiled three times without winning the approval coming from CFIUS. Afterwards, the companies decided to appeal to the president in hopes of sidestepping the committee’s hurdle. Their decision proved to be unsuccessful as the White House cited not only security threats but also other possible consequences brought about by the deal as reasons to block it.
The decision was made with recommendations coming from the White House and the National Treasury Department, making them a multi-agency panel.
The scrutiny aimed at the planned acquisition began when a news agency reported in November the indirect links of Canyon Bridge to China’s central government and its space program. As a result, officials raised concerns about it.
Lattice manufactures relatively low-tech chips which are known as field programmable gate arrays. These chips are considered flexible and useful since companies are able to put their own software on it for different purposes, such as communication, computing, and/or industrial and military applications. 70 percent of the company’s revenue is generated from Asia, according to reports.
Both companies asserted that the deal did not pose any threats to security, and added that the acquisition would prove to be beneficial to Lattice since it would double the number of workers in the American company.
Chinese companies have been on the hunt for acquisitions in the field of chip manufacturing with its persistent aim to build a sturdy domestic supply, as well as to rely less on imports. China is the world’s largest chip market, according to statistics.
The White House released a statement in relation to the president’s decision, and said, “The national-security risk posed by the transaction relates to, among other things, the potential transfer of intellectual property to the foreign acquirer, the Chinese government’s role in supporting this transaction, the importance of semiconductor supply chain integrity to the United States Government, and the use of Lattice products by the United States Government.”
Trump also asked the commerce department to study the possibility of raising tariffs on imported steel on national security grounds.
The president’s decision is believed to be an aggravator to the lingering tension between the US and the Asian giant due to trade and political conflicts. Trump has been accusing China of stealing jobs from America, and this recent decision by him becomes more reflective of his buffed up criticism for the Asian giant. He has also accused China of failing to do more to restrain North Korea in the latter’s nuclear ambitions. Meanwhile, the Chinese communist party is in its preparatory phase as it is set to hold is once-every-five-years Congress meeting in October.
Moreover, Canyon Bridge has expressed its disappointment over the president’s blocking of the deal, saying that the proposed acquisition would have been “an excellent deal for Lattice’s shareholders and its employees.”
China has also issued a comment on the decision in question.
“We believe conducting security examinations of investments in sensitive sectors is a country’s legitimate right, but it should not become a tool for advancing protectionism,” said Gao Feng, who is the Chinese Commerce Ministry spokesperson, in a press briefing on Thursday.
Gao Feng also expressed his hopes that the US government would be more objective in viewing acquisitions by Chinese firms, emphasizing that such deals are parts of a “normal commercial behavior.”
Lattice and Canyon Bridge released a joint statement on the same day confirming the termination of the proposed deal.
Lattice’s chief executive officer Darin G. Billerbeck said, “The transaction with Canyon Bridge was in the best interests of our shareholders, our customers, our employees, and the United States. We will continue to focus on initiatives that will contribute to Lattice’s long-term success.”
On record, it was just the fourth time in a quarter century that a US president ordered a blocking of a foreign acquisition of an American company due to national security concerns.
Lattice and Canyon Bridge’s decision to tap the president is considered highly unusual, since most companies coming under the scrutiny of the CFIUS commonly walk away before the secretive committee is able to brand them as a “security threat.” Companies take any early indication that the committee won’t approve a deal as an immediate “no” for their transaction. Although a president can theoretically overrule the committee’s recommendation, none among the three instances disobeyed the CFIUS. All three proposals handed to the president’s office have been blocked since 1990.
Trump’s decision also foretells unfavorable implications for other Chinese deals which are currently under the committee’s review, making them seem to be on the verge of an impending doom.
Included in the list of proposals awaiting approval is Ant Financial’s purchase of the US money transfer firm MoneyGram International Inc. The deal amounts to $1.2 billion. Ant Financial is a financial services company controlled by Jack Ma, a Chinese billionaire.
“We are not commenting on the CFIUS process, but we are continuing to work with the various regulatory agencies and remain focused on closing the transaction by the end of the year,” said Ant Financial in a statement. Ant Financial has already resubmitted the deal in July and is still actively discussing with the committee according to sources.
Also under the government’s watchful eyes is the agreement between the Chinese conglomerate HNA Group Co and SkyBridge Capital LCC. HNA Group plans to buy a hedge fund from SkyBridge, which is a fund-management firm founded by Trump’s former White House communications director, Anthony Scaramucci.
HNA has not issued a comment regarding the president’s decision.
Other acquisitions awaiting approval are China Oceanwide Holdings Group Co Ltd’s $2.7 billion purchase of US insurer Genworth Financial Inc, and Unica Capital Management’s $580 million acquisition of US semiconductor testing company Xcerra Corp.
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