Aixtron Tumbles as Obama Said Poised to Block Chinese Takeover
(Bloomberg) -- U.S. President Barack Obama is poised to block a Chinese company from buying Aixtron SE in Germany, people familiar with the matter said, marking only the third time in a quarter century that the White House has rejected an overseas buyer as a national security risk.
The president is expected Friday to uphold a recommendation by the Committee on Foreign Investment in the U.S. (CFIUS) that the sale of the semiconductor-equipment supplier to Grand Chip Investment GmbH should be stopped, according to the people, who asked not to be identified as the details aren’t public. Aixtron shares dropped as much 7.5 percent.
"We’re in intensive contact with the relevant authorities,” Aixtron spokesman Guido Pickert said Friday by phone. "We’re still waiting to hear on a decision.”
Blocking the 670 million euro ($714 million) acquisition would derail China’s ongoing quest to buy Western engineering prowess, which has sparked political concerns about foreign ownership in Europe and the U.S. Chinese companies have announced or completed deals worth a record 11.3 billion euros in Germany alone this year, with targets including robot maker Kuka AG -- also being investigated by CFIUS -- and a division of Osram Licht AG. German Economy Minister Sigmar Gabriel has called for more scrutiny of Chinese purchases and his ministry is still examining the Aixtron deal.
Aixtron dropped as much as 29 cents and traded down 4.1 percent to 3.70 euros as of 10:48 a.m. in Frankfurt. The stock has declined 11 percent this year, valuing the Germany company at 414 million euros.
CFIUS reviews purchases of U.S. companies by foreign buyers and pays particular attention to purchases of technology with defense applications. It has a say in the Aixtron deal because the company has a subsidiary in California and employs about 100 people in the U.S., where it generates about 20 percent of its sales.
Aixtron technology can be used to produce products including light-emitting diodes, lasers and solar cells, and can have military applications in satellite communications and radar. Northrop Grumman Corp., a major U.S. defense contractor, is among its customers, according to a Bloomberg supply chain analysis.
“It will be extremely difficult for China’s state owned enterprises to do deals in the semiconductor industry looking forward,” said He Weiwen, deputy director at the Center for China and Globalization. “It definitely posts a negative impact on China-U.S. relations, but the damage is limited.”
The decision comes at a crucial moment for U.S.-China relations. President-elect Donald Trump has accused China of carrying out unfair trade practices that hurt U.S. workers and said he’d impose tariffs on Chinese goods. Meanwhile, Chinese foreign direct investment in America reached a record $15.3 billion in 2015, according to Rhodium Group.
“A normal commercial acquisition deal should be considered using commercial standards and market principles,” Geng Shuang, a spokesman for the Foreign Ministry, told reporters in Beijing. “We don’t want the outside world to over-interpret this commercial activity from a political angle nor to add political interference.”
Notable investments by Chinese companies include the purchase of Smithfield Foods Inc. by WH Group Ltd. in 2013 and China National Chemical Corp.’s bid for Syngenta AG, which CFIUS cleared in August.
CFIUS doesn’t comment on its reviews because they’re confidential. Grand Chip didn’t respond to e-mailed requests for comment.
Blocking the deal would mark the second time Obama has done so on national security grounds. The first was in 2012 when he stopped Chinese-owned Ralls Corp. from developing a wind farm near a Navy base in Oregon. Before that, in 1990 then-president George H.W. Bush stopped a Chinese acquisition of MAMCO Manufacturing Inc., an aircraft-parts maker.
The U.S.-China Economic and Security Review Commission said last month in a report to Congress that CFIUS should be authorized to stop Chinese state-owned enterprises from acquiring U.S. companies, saying Beijing uses the firms as "a tool to pursue social, industrial and foreign policy objectives."
CFIUS determined Aixtron’s sale to Grand Chip, announced in May, raised unresolved national security concerns and should be abandoned, Aixtron said Nov. 18. Aixtron and Grand Chip rejected that position and planned to continue negotiations with the government, according to the statement. By law, the U.S. president has 15 days to decide on a CFIUS matter after the panel completes its investigation and must issue an executive order to block a deal.
When a deal raises security risks, the companies can try to negotiate conditions to resolve government concerns, such as a requirement that only U.S. citizens handle certain products and services. When CFIUS concerns can’t be resolved the sale is often abandoned rather than going to the president for a formal rejection.