HONG
KONG — As Chinese companies try to snap up American tech businesses,
they are setting off ripples of unease in the Obama administration and
in Congress, inciting a backlash that has stopped the latest acquisition
attempt.
One
of the companies that first brought silicon to Silicon Valley —
Fairchild Semiconductor International — said it would remain in American
hands after rejecting a takeover offer worth about $2.5 billion led by
Chinese state-backed buyers. Instead, Fairchild embraced a smaller bid
from an American rival on Tuesday, citing concerns that federal
regulators might reject the Chinese deal.
The
unsuccessful Chinese bid for Fairchild was just one of at least 10 such
offers in the last year for international semiconductor businesses,
mostly in the United States. China’s Five-Year Plan, the government’s
economic and strategic road map, has emphasized semiconductors as a core
industry. And a long list of Chinese companies with varying ties to the
government have been trying to acquire foreign technology in the
sector.
Recent
Chinese moves in areas like heavy equipment, aerospace and financial
services are also drawing attention from both ends of the American
political spectrum.
A
group of 44 Republican members of Congress and one Democrat sent a
letter on Tuesday afternoon to the Treasury Department, demanding that
the Obama administration’s interagency committee on foreign acquisitions
“conduct a full and rigorous investigation” of a bid by a company in
Chongqing, China, to acquire the small but historic Chicago Stock
Exchange.
Representative
Robert Pittenger, Republican of North Carolina, said in a telephone
interview that it had been easy to gather signatures on the letter in
the House, with members worried that the deal would give China direct
access to America’s financial infrastructure. “It took two days —
generally, you’ll spend two weeks trying to get signatures,” he said.
But because semiconductors are the tiny electronic cores of a long list of military systems, including drones
and smart bombs, Chinese interest in them has attracted the most
attention in Washington. Those worries have been amplified as the Obama
administration has repeatedly accused Beijing of cyberespionage against
the United States. The worries have further increased as China has
expanded its role in the South China Sea, including claims by the United
States and Taiwan this week that China has deployed surface-to-air missiles there.
“China’s
engaged in a buying spree of international semiconductor firms,” said
Michael R. Wessel, a member of the United States-China Economic and
Security Review Commission, a group created by Congress to monitor
bilateral relations. “What they can’t develop on their own, they intend
to buy, if they can, or steal, if they must.”
The
Chinese government has vehemently denied that it is responsible for
hacking attacks, while pointing to detailed disclosures by Edward
Snowden of how the United States engages in extensive electronic
intelligence gathering on China. Economists in China — and some in the
United States, particularly at Wall Street banks that advise on Chinese
acquisitions — argue that the United States needs to remain open to
foreign investment, particularly given low American savings rates.
When
Washington politicians start objecting to Chinese acquisitions,
“they’re caught up by old-school, Cold War thinking,” said Fred Hu, a
prominent Chinese economist and fund manager.
Fears
about Chinese control over critical technologies recently prompted
United States officials to block a $2.9 billion deal for Chinese
investors to buy a controlling stake in a unit of the Dutch electronics company Philips.
Fairchild
said in early January that it expected a bid from China Resources
Microelectronics — a unit of the state-owned China Resources Holdings —
and Hua Capital Management to be a “superior proposal.” That offer
amounted to $21.70 a share in cash, compared with the $20 a share that ON Semiconductor,
an American company, had on the table. But worries about the likelihood
of approval from the Committee on Foreign Investment in the United
States outweighed the attractiveness of the bid.
Fairchild’s
decision shows the effect of broader political suspicion in the United
States toward Chinese investment in the high-tech sector. Last summer, a
similar but much larger deal was derailed before it even made it to
regulators. The $23 billion bid
for the American memory chip maker Micron by a Chinese state-controlled
firm was undone by concerns about its political feasibility.
In
that case, Senator Chuck Schumer, Democrat of New York, voiced worries
about the deal’s effect on national security in a public letter to
Treasury Secretary Jacob J. Lew. But Republicans are now starting to
take up the issue, which means that it could take on a partisan
dimension in an election year.
Despite
the difficult climate, Chinese bids for American companies seem likely
to increase, affected by a slowing Chinese economy and a desire by many
Chinese companies to move money out of the country before China’s
currency can weaken further against the dollar. In the sensitive
microchip industry, deals are also being driven by more than $100
billion set aside by the Chinese government to help the country improve
the sophistication and scale of the critical industry.
The
number of deals involving a Chinese company that is trying to buy an
overseas chip maker rose to 21 last year, including the offer for
Fairchild, from eight in 2010, according to the data company Dealogic.
There have already been five this year, worth $857 million.
That
has drawn more attention to the Committee on Foreign Investment in the
United States, also known as Cfius. An interagency body that includes
representatives from the Treasury, Justice and Defense Departments,
Cfius can recommend against foreign deals made for American companies,
or companies connected to the United States, on grounds of national
security. The agency can also broker compromises in which companies
enact special security checks for sensitive aspects of an acquisition or
sell off those assets.
Many in the semiconductor industry are watching closely to see whether Cfius will investigate a bid by the Chinese chip maker Tsinghua Holdings for a stake
in the American company Western Digital, which makes hard disk drives. A
lack of an investigation could herald more moves by Chinese investors
to take minority stakes in American chip and memory companies.
The potential Chinese buyers of Fairchild had already agreed to pay a $108 million termination fee
if the deal did not get approval from Cfius. They also increased their
offer to $22 a share after Fairchild raised concerns. But Fairchild’s
transaction committee said an agreement would still be too risky.
The
Fairchild board said in a regulatory filing on Tuesday that it found
the higher offer attractive but that there was “nonnegligible risk of a
failure to obtain Cfius approval.”
Fairchild
works on several technologies that could have raised concerns. In
particular, it develops and produces sensors that track motion in three
dimensions, which are used in many cutting-edge technologies. Xsens,
a company acquired by Fairchild in 2014, works on sensors that guide
unmanned submarines and drones and help in maritime surveillance.
Shares
of ON Semiconductor closed up more than 6 percent on Tuesday, when
Fairchild announced that it still favored the American company’s bid.
Fairchild’s stock dropped almost 3 percent.
http://www.nytimes.com/2016/02/18/business/dealbook/china-fairchild-semiconductor-bid-rejected.html?WT.mc_id=SmartBriefs-Newsletter&WT.mc_ev=click&ad-keywords=smartbriefsnl&_r=0
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