Lawyers for Japanese chipmaker Renesas may need to get a little creative if they're to pull off a reported acquisition of U.S. chip designer Intersil. Regulators in Washington face a bigger headache.
Renesas is in talks to buy Intersil for about $3 billion, a person with knowledge of the matter told Bloomberg News. The negotiations were reported earlier by the Nikkei Asian Review. The Japanese company said in a statement that Intersil is one of several options it's looking at for expansion.
Neither price nor funding should be the stumbling block for this deal to go through. Renesas has $3.9 billion in cash and while a premium of up to 42 percent over Intersil's current $2.1 billion valuation is high, it's not off the charts.
What may trip up the acquisition is U.S. regulators. Specifically, the Committee on Foreign Investment in the U.S., aka CFIUS. According to the U.S. Treasury, which chairs the committee:
CFIUS is an inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person, in order to determine the effect of such transactions on the national security of the United States.
We've seen this group pop up before to nix acquisitions, mostly by Chinese buyers and even in the case of non-U.S. targets. (CFIUS also surprises on occasion by waving such deals through, as it did Monday with the approval of China National Chemical's $43 billion takeover of Switzerland's Syngenta.)
Earlier this year, the planned $2.8 billion sale of 80 percent of Lumileds, an LED lighting unit of Amsterdam-based Philips, was halted over concerns the Chinese would get access to sensitive technology. The seller, Philips, and buyer GO Scale Capital tried unsuccessfully to "mitigate the concerns" of regulators, they said at the time.
Then there's Fairchild's decision to sell to ON Semiconductor for $2.2 billion despite the board initially deciding that a consortium of China Resources and Hua Capital was the superior bidder. Again, CFIUS's fingerprints were all over that deal's cessation. Even more telling was the fact that hard-drive maker Western Digital couldn't sell even a measly 15 percent to Tsinghua Unisplendour, an affiliate of China's most prestigious university.
So what then is different about a Japanese company buying California-based Intersil? Nothing.
Put simply, there's no reason why all those other deals should fail and this Renesas deal should pass.
According to Intersil's own website, the company is "a major supplier to the military and aerospace industries." That should be red flag number one to a U.S. committee whose sole job is to consider a deal's impact on national security, and that counts the Department of Defense and the Department of Homeland Security among its members.
You could point to all those Chinese buyers as being fronts for Beijing. After all, most major companies in China have some kind of government connection even if they're not as plain as Tsinghua's. Yet Renesas's controlling shareholder is none other than Innovation Network Corp of Japan.
Billed as a public-private partnership, INCJ is 95 percent funded by the Japanese government and is itself a 69 percent owner of Renesas. Note that the CFIUS explainer doesn't specify "foreign government," merely a "foreign person."
So when you consider Renesas's obvious ties to a foreign government, and Intersil's clear importance to U.S. security interests, it's hard to separate the deal from all those other acquisitions that failed. Except, of course, the country of origin: Japan is an ally, China is not.
The U.S. needs to decide whether it wants to be seen as being fair and even-handed in considering technology acquisitions by foreign interests. That makes the Intersil approach an important test case. Failure to give convincing reasons for allowing a Renesas purchase would leave the impression that the U.S. is targeting China explicitly. That could only inflame trade tensions.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
(Adds reference to ChemChina-Syngenta approval in fifth paragraph.)
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Tim Culpan in Taipei at firstname.lastname@example.org
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