Trump to Weigh Security Risk of Chinese Bid for Chipmaker
Trump to Weigh Blocking China-Backed Deal for Chip-Firm Lattice
(Bloomberg) -- President Donald Trump will decide whether to block a China-backed fund from buying Lattice Semiconductor Corp. after U.S. national security officials opposed the takeover.
Lattice said Friday in a regulatory filing that the companies weren’t able to resolve concerns raised by the Committee on Foreign Investment in the U.S., which reviews foreign acquisitions of American companies for national security risks. CFIUS will now send the $1.3 billion deal to Trump for the final word on whether it should proceed. The president has 15 days to make a decision.
Lattice said it hopes the president will allow the merger to go forward because the company and the China-backed fund, Canyon Bridge Capital Partners LLC, have proposed mitigation measures to resolve national security risks.
“Lattice remains of the view that the proposed transaction does not raise any national security concerns that cannot be addressed by the comprehensive mitigation measures that Lattice and Canyon Bridge have proposed to implement,” the company said in the filing.
A rejection of the deal by the Trump administration would frustrate China’s bid to develop its semiconductor know-how amid the biggest wave of consolidation in the history of the $300 billion industry. China, the largest market for chips, has been on the hunt for acquisitions in the field as it looks to build a domestic supply and rely less heavily on imports.
The U.S. has portrayed China’s investment push -- $150 billion over 10 years -- as a risk to U.S. national security. Lattice is one of the few makers of programmable logic chips, which have a wide variety of uses because their attributes can be changed using software. Such semiconductors are frequently used in components for military communications.
Long Shot
Lattice’s move to go to the president is a long shot. In the three instances since 1990 that presidents have intervened in foreign takeovers, all have been blocked. Still, Lattice and Canyon Bridge hope to win over Trump with a deal that they say protects U.S. jobs.
“We support the Lattice board’s decision to take our proposed acquisition to the president,” Canyon Bridge said in a statement. “We believe President Trump will recognize the benefits this investment will provide -- to keep and grow jobs in the U.S., as well as expand Lattice’s product portfolio.”
Canyon Bridge, a private-equity fund with offices in California and Beijing, is investing on behalf of a Chinese venture capital fund that, according to regulatory filings, is sponsored by China Reform Fund Management, a state-owned asset manager.
When CFIUS sees risks to U.S. national security, it can impose changes to a deal. If its concerns can’t be resolved, the panel sends a recommendation to the president to block it. Only the president can stop a foreign takeover, and he can overrule the panel’s recommendation. Companies generally abandon transactions rather than risk a presidential block, which leaves a prospective buyer branded as a national security threat.
CFIUS, which is led by the Treasury Department, is sending a package to Trump that includes a full record of the committee’s review, including information exchanged between the companies and the panel, and its assessment of the risks from the takeover.
Presidential Decision
A presidential decision on a foreign acquisition of a U.S. company is extremely rare. The most recent was in December when then-President Barack Obama blocked the sale of the semiconductor equipment supplier Aixtron SE to a Chinese firm.
If Trump upholds CFIUS’s recommendation that the deal should be stopped, the move would mark another Chinese takeover that has collapsed this year after failing to win approval from the security panel and bodes badly for other deals in the pipeline. At least two Chinese deals have been terminated. A third was scheduled to expire on Thursday.
Lattice, based in Portland, Oregon, and Canyon Bridge have been trying to win approval from CFIUS since striking the deal last November, going through three 75-day reviews by the panel. Lattice’s Chief Executive Officer Darin Billerbeck was in Washington this week to make a last-ditch effort to persuade government officials to support the deal.
CFIUS doesn’t comment on its reviews, which are confidential. The White House didn’t respond to a request for comment.
The Lattice deal is among several reviewed recently by CFIUS. The reviews have been slowed because many departments that sit on the interagency panel are still awaiting senior-level staff under the Trump administration. CFIUS is also grappling with a record number of filings. Deal reviews are getting bogged down even for routine investments from countries friendly to the U.S., according to lawyers who work on cross-border transactions.
Another Chinese takeover that has run into hurdles with CFIUS is MoneyGram International Inc.’s sale to Ant Financial, the financial-services company controlled by Chinese billionaire Jack Ma. HNA’s agreement to buy a stake in Anthony Scaramucci’s SkyBridge Capital LLC is nearing the end of its review.
--With assistance from Ian King and Toluse Olorunnipa
To contact the reporter on this story: David McLaughlin in Washington at dmclaughlin9@bloomberg.net.
To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, David S. Joachim