Trump halts Chi­nese-backed firm’s Lat­tice pur­chase

The Daily Star (Lebanon) - - BUSINESS -

WASH­ING­TON: U.S. Pres­i­dent Don­ald Trump blocked a Chi­ne­se­backed pri­vate eq­uity firm from buy­ing a U.S.-based chip­maker Wed­nes­day, send­ing a clear sig­nal to Bei­jing that Wash­ing­ton will op­pose takeover deals in­volv­ing tech­nolo­gies with po­ten­tial mil­i­tary ap­pli­ca­tions.

Canyon Bridge Cap­i­tal Part­ners’ planned $1.3 bil­lion ac­qui­si­tion of Lat­tice Semi­con­duc­tor Corp was one of the largest at­tempted by a Chi­nese-backed firm in the U.S. mi­crochip sec­tor and was the first an­nounced deal for the buy­out fund, which launched last year with a fo­cus on tech­nol­ogy in­vest­ment. U.S. reg­u­la­tory scru­tiny grew af­ter Reuters re­ported in Novem­ber that Canyon Bridge was funded partly by cap­i­tal from China’s cen­tral gov­ern­ment and had in­di­rect links to its space pro­gram.

U.S. de­fense of­fi­cials sub­se­quently raised con­cerns about the Lat­tice ac­qui­si­tion by a firm backed by the Chi­nese gov­ern­ment.

Port­land, Ore­gon-based Lat­tice makes chips known as field-pro­gram­mable gate ar­rays, which al­low com­pa­nies to put their own soft­ware on sil­i­con chips for dif­fer­ent uses. It said it no longer sells chips to the U.S. mil­i­tary, un­like its two big­gest ri­vals, Xil­inx Inc and In­tel Corp’s Al­tera. Trump said in an ex­ec­u­tive or­der that Lat­tice and Canyon Bridge “shall take all steps nec­es­sary to fully and per­ma­nently aban­don the pro­posed trans­ac­tion” within 30 days.

Trump’s de­ci­sion chimes with the views of the Com­mit­tee on For­eign In­vest­ment in the United States, which scru­ti­nizes deals for po­ten­tial na­tional se­cu­rity threats.

U.S. Trea­sury Sec­re­tary Steven Mnuchin said in a state­ment fol­low­ing the de­ci­sion that “CFIUS and the pres­i­dent as­sess that the trans­ac­tion poses a risk to the na­tional se­cu­rity of the United States that can­not be through mit­i­ga­tion.”

Mnuchin added that the na­tional se­cu­rity risk was re­lated to the trans­fer of in­tel­lec­tual prop­erty, the Chi­nese gov­ern­ment’s role in sup­port­ing the deal, the im­por­tance of semi­con­duc­tor sup­ply chain in­tegrity to the U.S. gov­ern­ment and the U.S. gov­ern­ment’s use of Lat­tice prod­ucts.

China ex­pressed con­cern about the de­ci­sion.

“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,” Chi­nese Com­merce Min­istry spokesman Gao Feng told a press re­solved brief­ing Thurs­day.

Gao said he hoped the United States could view Chi­nese firms’ ac­qui­si­tions ob­jec­tively and pro­vide fair treat­ment to what was their “nor­mal com­mer­cial be­hav­ior.”

Lat­tice and Canyon Bridge said in a joint state­ment late Wed­nes­day they had ter­mi­nated the pro­posed deal. Lat­tice also said it is com­mit­ted to achiev­ing prof­itable growth.

Canyon Bridge had said in an ear­lier state­ment that it was dis­ap­pointed in the de­ci­sion, and called the pro­posed trans­ac­tion “an ex­cel­lent deal for Lat­tice’s share­hold­ers and its em­ploy­ees.”

The an­nounce­ment comes at a sen­si­tive time for U.S.-China re­la­tions, which are al­ready strained over trade is­sues and North Korea. The Chi­nese Com­mu­nist Party is also pre­par­ing to hold its once-ev­ery-fiveyears Congress in Oc­to­ber.

Trump’s de­ci­sion ends a pro­longed cam­paign by Canyon Bridge and Lat­tice to seal the deal. Canyon Bridge and Lat­tice had spent more than eight months try­ing in vain to per­suade CFIUS to clear the ac­qui­si­tion.

Both com­pa­nies had said the deal did not pose any se­cu­rity risks and Canyon Bridge told CFIUS it would dou­ble the num­ber of Lat­tice’s em­ploy­ees in a bid to make the deal more palat­able, ac­cord­ing to peo­ple fa­mil­iar with the mat­ter who de­clined to be iden­ti­fied be­cause de­tails of the reg­u­la­tory process are con­fi­den­tial.

The com­pa­nies’ de­ci­sion to ap­peal di­rectly to Trump was a last-ditch gam­ble. It was the first such deal to hit Trump’s desk and only the fourth time in three decades that an ac­qui­si­tion was put in front of a pres­i­dent af­ter CFIUS rec­om­mended against it.

Trump has hewed to the pres­i­den­tial tra­di­tion of fol­low­ing the ad­vice of na­tional se­cu­rity of­fi­cials on deals.

The U.S. re­fusal po­ten­tially hurts Canyon Bridge’s abil­ity to ac­quire other Western semi­con­duc­tor com­pa­nies. Most of its ac­qui­si­tion tar­gets have U.S. op­er­a­tions, mak­ing them sub­ject to a CFIUS review.

Palo Alto, Cal­i­for­nia-based Canyon Bridge has been work­ing on a bid for Bri­tish semi­con­duc­tor com­pany Imag­i­na­tion Tech­nol­ogy Group, sources have pre­vi­ously said. If Canyon Bridge clinches that deal, it would also be sub­ject to CFIUS review since Imag­i­na­tion Tech­nolo­gies ac­quired U.S. chip de­signer MIPS in 2013.

While Canyon Bridge could choose to di­vest MIPS, which ac­counts for a small frac­tion of Imag­i­na­tion Tech­nolo­gies’ busi­ness, there is no cer­tainty that would be enough to re­solve all CFIUS is­sues, ac­cord­ing to the sources.

Imag­i­na­tion Tech­nolo­gies de­clined to com­ment.

In­vestors have been skep­ti­cal the Lat­tice deal would get passed since it was an­nounced last Novem­ber. Lat­tice shares have been trad­ing be­low the deal’s $8.30 of­fer price and were down 1.6 per­cent in af­ter­hours trad­ing Wed­nes­day.

Chi­nese deals await­ing ap­proval in­clude Ant Fi­nan­cial’s $1.2 bil­lion pur­chase of U.S. money trans­fer com­pany MoneyGram In­ter­na­tional Inc and China Ocean­wide Hold­ings Group Co. Ltd.’s $2.7 bil­lion ac­qui­si­tion of U.S. in­surer Gen­worth Fi­nan­cial Inc. –

Lat­tice makes chips that al­low com­pa­nies to put their own soft­ware on sil­i­con chips for dif­fer­ent uses.

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