Micron Takeover Seen Facing Tough U.S. Review Over China Ties

A China-backed bid for chipmaker Micron Technology Inc. would encounter close scrutiny by American national security officials worried about Chinese control of U.S. technology firms.

China’s Tsinghua Unigroup Ltd. is preparing a bid for Idaho-based Micron that could be announced as early as Wednesday, according to a person familiar with the matter. Such an acquisition would give China the world’s fifth-largest chipmaker by revenue, one able to compete with the likes of Samsung Electronics Co. and SK Hynix Inc. with manufacturing capabilities in the U.S., Japan and Singapore.

Acquisitions of U.S. firms by Chinese-backed entities generally raise security concerns with Committee on Foreign Investment in the U.S., a panel led by the Treasury Department, which reviews foreign acquisitions of U.S. business to protect national security. Scrutiny over a bid for Micron -- the largest U.S. manufacturer of memory chips -- would undoubtedly be high though approval could be possible, said people familiar with CFIUS.

“Whether it has a chance requires very detailed analysis of information -- much of which is confidential,” Stewart Baker, a former National Security Agency general counsel and now a partner at the Washington law firm Steptoe & Johnson LLP, said in an interview.

‘Widely Diffused’

A deal for Micron should be able to get through the review with conditions, said Nova Daly, a senior public policy adviser at Wiley Rein LLP in Washington. A purchase would give China, which accounts for more than half of the world’s demand for semiconductors, the technology to build memory chips that go into computers and smartphones.

“This is a deal that can get through CFIUS because while semiconductors are an important technology, the technology behind Micron’s products is widely diffused,” said Daly, a former U.S. Treasury official who managed CFIUS reviews.

Hans Mosesmann, an analyst at Raymond James, was more skeptical. Memory chips, in particular those used in computer storage, are “strategic in nature in next-generation data centers with potential security implications,” Mosesmann wrote in a note to clients today.

The U.S. will probably block the deal, given hacking incidents reportedly from China, Mosesmann wrote, adding: “This deal won’t happen, regardless of the price.”

Chinese investors acquiring American businesses were subject to the most national security reviews in 2013, according to the panel’s most recent report to Congress.

Memory, Storage

Micron makes two types of chips, dynamic random access memory -- used as short-term memory in computers and phones -- and Nand flash, which acts as storage in those devices. China accounts for 41 percent of its sales.

While those chips can be bought from other suppliers, including Samsung, no Chinese company can currently match Micron’s advanced manufacturing.

A Tsinghua Unigroup deal for Micron would be the largest outbound acquisition for a China-based company, surpassing Cnooc Ltd.’s $17.4 billion bid for Nexen Energy ULC in 2012, according to data compiled by Bloomberg.

State-controlled Tsinghua Unigroup is the investment arm of Tsinghua University, which counts the country’s President Xi Jinping and former President Hu Jintao among its alumni.

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