Trump Rebuff of China Chip Deal Spurs Beijing Call for Fairness

Sep 18, 2017 6:38 pm ET

(Bloomberg) -- President Donald Trump’s rejection of a China-led takeover of a U.S. chipmaker on national-security grounds cast a cloud over other Chinese deals seeking federal clearance and spurred a call for fairness from Beijing.

It was just the fourth time in a quarter century that a U.S. president has ordered a foreign sale of an American firm stopped for security reasons. Lattice Semiconductor Corp.’s spurned buyer was Canyon Bridge Capital Partners LLC, a private-equity firm backed by a Chinese state-owned asset manager.

Trump’s order blocking the deal builds on years of U.S. opposition to China’s efforts to bolster its chip industry by buying American technology. It also extended his administration’s broader resistance to China-backed purchases, even as it seeks China’s help to resolve the North Korean nuclear crisis.

Other deals under review include MoneyGram International Inc.’s proposed sale to Ant Financial, the financial-services company controlled by Chinese billionaire Jack Ma. The U.S. is also examining an agreement by Chinese conglomerate HNA Group Co. to buy a stake in SkyBridge Capital LLC, the fund-management firm founded by Anthony Scaramucci, who was briefly Trump’s White House communications director.

“Conducting security checks on a sensitive investment is a nation’s legitimate right, but it shouldn’t be used as a protectionist tool,” Chinese Ministry of Commerce spokesman Gao Feng told reporters Thursday in Beijing. The acquisition of Lattice is a corporate decision that the U.S. should evaluate objectively, and the administration needs to create more transparency, he said.

Stocks Action

MoneyGram shares fell 4 percent Thursday after dropping as much as 4.4 percent in after-market U.S. trading Wednesday. Lattice shares sank as much as 5.6 percent before trading little changed. Shares of Genworth Financial Inc., which has a $2.7 billion sale to China Oceanwide Holdings Group Co. pending U.S. approval, dropped 3 percent.

Canyon Bridge said in a statement it was disappointed with the decision and would stay focused on other investment opportunities. Lattice said the acquisition was being terminated after the president’s order.

“The transaction with Canyon Bridge was in the best interests of our shareholders, our customers, our employees and the United States,” Lattice Chief Executive Officer Darin G. Billerbeck said in a statement. “We will continue to focus on initiatives that will contribute to Lattice’s long-term success.”

Billerbeck came to Washington two weeks ago to make a last-ditch effort to persuade government officials to support the deal, Bloomberg News reported. Lattice and Canyon Bridge had proposed measures they said would address U.S. concerns while allowing the deal to proceed, according to that report.

Military Applications

Lattice makes programmable logic chips, which have a wide variety of uses because their attributes can be changed using software. The chips are used in communications, computing, and in industrial and military applications. The company generates more than 70 percent of its revenue in Asia, according to data compiled by Bloomberg.

China, the world’s largest chip market, has been on the hunt for acquisitions in the field as it looks to build a domestic supply and rely less on imports, as the $300 billion global semiconductor industry undergoes its biggest wave of consolidation. U.S. officials worry that China’s investment push could threaten the competitiveness of American industry and give Beijing access to cutting-edge technology with commercial and military applications.

The national-security risks posed by the deal included "the Chinese government’s role in supporting this transaction, the importance of semiconductor supply chain integrity to the United States government, and the use of Lattice products by the United States government," the White House said.

Lattice, based in Portland, Oregon, went to uncommon lengths in hopes of saving its $1.3 billion sale to Canyon Bridge, first announced in November. Acquisitions of U.S. companies like Lattice by overseas buyers are reviewed by the Committee on Foreign Investment in the U.S., a panel staffed by senior officials from the Treasury, State, Homeland Security and Defense departments. CFIUS can bless deals or recommend changes to address security concerns. If it doesn’t like a deal, it can recommend the president block it. 

But the process rarely gets that far. It’s more common for companies to walk away from a transaction once the secretive panel -- which doesn’t comment publicly on its work -- indicates it won’t approve it, rather than risk being branded a security threat. While a president in theory could overrule the panel’s recommendation, the three previous proposals kicked up to the president since 1990 have been blocked as the panel advised.

In this instance, Lattice and Canyon Bridge refiled three times without winning approval before making the unusual decision to appeal to Trump in hopes of winning him over with a pledge to save jobs.

The proposed acquisition was at least the third Chinese deal that collapsed this year after failing to win approval from the security panel. The others are HNA’s investment in Global Eagle Entertainment Inc., an in-flight entertainment and internet-services provider, and T.C.L. Industries Holdings’ proposed purchase of Inseego Corp.’s mobile-broadband business.

--With assistance from Miao Han Jeff Kearns and Emma O'Brien

©2017 Bloomberg L.P.