U.S. regulators sent their clearest message yet to Chinese suitors trying to raid American technology assets: Hands off.
China's Tsinghua Unisplendour on Tuesday scrapped a plan to buy a 15 percent stake in U.S. hardware maker Western Digital. It pulled the plug after the Committee on Foreign Investment in the United States decided to investigate the deal, a sign that trouble was ahead. (The agency has the power to block foreign takeovers it deems detrimental to U.S. interests.)
The news probably came as a bit of a shock to the bankers, lawyers and investors who figured that a minority investment in a very low-tech U.S. company would sail through the approvals process. And it doesn't bode well for the pile of pending cross-border transactions, be they tech-related or otherwise.
Just last month, CFIUS blocked GO Scale Capital's $2.8 billion plan to buy 80 percent of Philips's Lumileds unit. Philips said that it and GO Scale had made "extensive efforts" to "mitigate the concerns" of the regulatory body, but had failed. Then this month, California-based Fairchild Semiconductor told investors it was rejecting a $2.46 billion Chinese stated-backed bid and going instead with a lower offer from Phoenix-based ON Semiconductor.
While Fairchild's board initially figured that the bid by a consortium of China Resources Microelectronics and Hua Capital was superior to ON's offer, a chat with their legal and financial advisers convinced them otherwise. The elephant in the room was of course CFIUS.
Fairchild is one of the oldest chipmakers in the U.S and makes power-regulating chips used in devices like TVs and smartphones. It's not worthless technology, but it's not exactly nuclear technology, either. For the Chinese buyers, and the lawyers advising them, it seemed reasonable to try to go forward with the deal and bet that it might make it past regulators.
Western Digital, though. That should have been a slam dunk. Tsinghua Unisplendour, an affiliate of state-backed Tsinghua Unigroup, was only asking for 15 percent, and Western Digital is in the somewhat pedestrian business of making hard drives. As far as technology goes, it doesn't get much more mundane.
The fact that Western Digital had to forego the Chinese money (while proceeding with its planned purchase of SanDisk) is not only bad news for the more than 40 Chinese outbound technology deals already being considered, but for the growing list of foreign companies hoping to be courted by Chinese with fat wallets.
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