Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

When it comes to cross-border acquisitions, it's pretty straightforward. China needs technology and Europe needs the world's second-biggest economy.

But with a key U.S. government agency rejecting Fujian Grand Chip Investment Fund LP's planned takeover of Germany's Aixtron SE just days after Donald Trump's surprise election victory, struggling European firms and tech-hungry mainland Chinese companies alike may be stuck for options.

Whether the timing is coincidental or not, CFIUS's ruling that the 670 million euro ($710 million) acquisition be prohibited due to unresolved national security concerns marks a relatively rare rejection by the U.S. competition watchdog of a non-American deal. One other came in January, when Royal Philips NV canceled a planned $2.8 billion sale of its lighting-components unit to a consortium led by GO Scale Capital of China.

That the Committee on Foreign Investment in the U.S. is weighing in on transactions by companies based outside the U.S. is a problem for firms like Aixtron, which counts several American defense contractors as customers but needs to expand its audience in China. If Washington starts objecting more often to approaches from flush Chinese buyers, where will much-needed cash infusions come from?

Although the Germans themselves have had second thoughts about Grand Chip's purchase, the rejection, which can be overturned by President Barack Obama, could prove the final nail in the coffin for Aixtron's global growth ambitions.

Revenue at Aixtron, which supplies equipment to the semiconductor industry, has been under pressure, especially after Chinese client Sanan Optoelectronics Co. canceled orders late last year.

When the Chips Are Down
Aixtron has been losing money amid a weak sales outlook
Source: Bloomberg

CFIUS's ruling also casts a shadow over another Chinese-German deal -- Midea Group Co.'s play for robot maker Kuka AG. European regulators have given it the green light but CFIUS has yet to weigh in. Like Aixtron, Kuka counts a number of U.S. defense contractors as key clients.

Increased scrutiny from regulators in America puts Chinese acquirers in a difficult spot, too. They're not only under pressure to fulfill President Xi Jinping's Made in China 2025 strategy, but also cut costs. Rising wages mean robot makers like Kuka could be a big help in that regard.

Confidence Crisis
Shares in Syngenta, Kuka and Aixtron -- all targets of Chinese companies -- have been struggling
Source: Bloomberg

Investors, for their part, aren't very optimistic. Aixtron, Kuka and Syngenta AG, the Swiss agribusiness giant whose takeover by China National Chemical Corp. received CFIUS approval in August but still needs European regulators' blessing, are all trading below their offer prices.

With Trump headed for the White House, there's already growing unease that Chinese firms will have a tougher time buying American assets. Now the net may be cast a lot wider.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net