An American chip maker is asking Donald Trump to approve its takeover by a Chinese government-backed fund, requesting the president overrule the recommendation of U.S. national security officials, and injecting him into a battle between the two countries to dominate the semiconductor industry.
[Kate O’Keefe | September 1, 2017 | Wall Street Journal]
An American chip maker is asking Donald Trump to approve its takeover by a Chinese government-backed fund, requesting the president overrule the recommendation of U.S. national security officials, and injecting him into a battle between the two countries to dominate the semiconductor industry.
The Committee on Foreign Investment in the U.S., which reviews deals for national security concerns, has indicated it will recommend blocking or suspending a $1.3 billion plan by Beijing-backed Canyon Bridge Capital Partners to take over Portland, Ore.-based Lattice SemiconductorCorp. , according to a filing by Lattice with the Securities and Exchange Commission on Friday.
But the companies plan to ask Mr. Trump—who has the final say—to make a ruling anyway, the Lattice filing and a statement from Canyon Bridge indicate. The process requires Mr. Trump to make a decision within 15 calendar days, according to the filing.
“Lattice is hopeful that given the benefits of the proposed transaction to Lattice’s stockholders and employees in the United States, and the substantial mitigation measures proposed by the parties, if the matter is referred to the President of the United States, the President will decide to allow the proposed Merger to be consummated,” the filing said.
The decision to ask Mr. Trump to overrule the recommendation of the committee, known as CFIUS, is extremely rare. Typically deal makers will walk away if the panel indicates it will recommend against their plan, meaning few deals ever reach the president’s desk. It is unlikely for a president to go against the panel’s recommendation, and by avoiding a possible high-profile White House rejection deal makers can save face and keep their powder dry for other transactions they might attempt in the U.S. and abroad
In this case, the deal makers are hoping Mr. Trump will like the deal for its job-creating potential and be satisfied with their efforts to address national security concerns.
“We support the Lattice Board’s decision to take our proposed acquisition to the President. 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 said in a statement.
A spokesman for the U.S. Treasury, which leads the multiagency review committee, said in a statement that it “is prohibited by statute from publicly disclosing information filed with CFIUS.” CFIUS, which also includes representatives from the Defense, State, Justice and Commerce departments, among others, has recently been toughening its scrutiny of Chinese deals, throwing a number of high-profile takeover bids into question and helping spur a huge case backlog.
The White House didn’t return requests for comment.
The Canyon Bridge-Lattice tie-up has become a lightning rod in an intensifying struggle between the U.S. and China over semiconductors—the chip technology that powers computers, mobile phones and much military hardware.
The firms waged an unusually public campaign as they sought—and failed—three times to gain approval from CFIUS, with principals from Canyon Bridge alleging in a recent interview with The Wall Street Journal that China-bashing in the U.S. was holding up the deal. The private-equity firm funded by the Chinese government has offices in both Palo Alto, Calif. and Beijing.
Lattice Chief Executive Darin Billerbeck was in Washington, D.C. this week meeting with CFIUS officials in a last-ditch effort to save the deal, according to a person familiar with the matter. He told the Journal in an earlier interview that he remained optimistic about the prospects of Mr. Trump approving the deal despite CFIUS’s objections. “I know that President Trump is a really intelligent businessman,” Mr. Billerbeck said. “I know that if you had 10 minutes to explain this deal to him, he would say it’s a good deal.”
U.S. scrutiny of China’s chip ambitions began gathering steam last year. In December, following an investigation by CFIUS, then-President Barack Obama took the rare step of personally blocking a Chinese investment fund’s purchase of German semiconductor-equipment supplier Aixtron SE, which has a factory and other offices in the U.S., after it failed to win CFIUS approval.
In January, an Obama administration advisory panel published a report warning of the economic and military dangers posed by China’s 10-year, $150 billion effort to build a cutting-edge semiconductor sector. The report called for policies to ensure the U.S. remains a global leader in semiconductors.
A bipartisan group of 22 House lawmakers led by Rep. Robert Pittenger (R., N.C.) wrote to CFIUS in December to flag the Lattice deal, expressing concern that it could provide China with critical military technology and accusing Canyon Bridge of initially trying to obscure its Chinese-government backing, which it denied.
Canyon Bridge has said that the company is interested in Lattice’s semiconductors because they are widely used in consumer electronics, particularly smartphones.
Lattice sold its military design unit in 2012, the same year the Federal Bureau of Investigation charged two Chinese residents for conspiring to acquire military-grade chips from the company. Lattice says it now makes only civilian-use chips—largely for consumer electronics—which lack heat shields and other features needed for military use.
The technical safeguards Lattice and Canyon Bridge have proposed to CFIUS would strengthen those currently in place and prevent any intellectual property from being transferred to China, Lattice’s Mr. Billerbeck said in an earlier interview.
