One of the companies that first brought silicon to Silicon Valley - Fairchild Semiconductor International - will remain in American hands after rejecting a takeover offer worth about $2.5 billion led by Chinese state-backed buyers. Instead, Fairchild on Tuesday embraced a smaller bid from a US rival, citing concerns about regulatory approval.
Fairchild had said in early January that it expected the bid from China Resources Microelectronics - a unit of the state-owned China Resources Holdings - and Hua Capital Management to be a "superior proposal." That offer amounted to $21.70 a share in cash, compared with the $20 a share that ON Semiconductor, an American company, had on the table. But worries about the likelihood of approval from the Committee on Foreign Investment in the United States outweighed the attractiveness of the bid.
Concerns about Chinese efforts to buy semiconductor technology have grown in Washington - such chips work as the brains for a variety of sophisticated electronic systems, including military hardware. These fears recently prompted officials to block a $2.9 billion deal for Chinese investors to buy a controlling stake in a unit of the Dutch electronics company Philips.
Fairchild's decision shows the effect of broader political suspicion in the United States toward Chinese investment in the high-tech sector. Last summer a similar, but much larger, deal was derailed before it made it to regulators. The $23 billion bid for the American memory chip maker Micron by a Chinese state-controlled firm was undone by concerns about its political feasibility.
In that case, Senator Chuck Schumer, Democrat of New York, voiced worries about the deal's effect on national security in a public letter to Treasury Secretary Jacob J Lew.
Fairchild works on several technologies that could have raised concerns. In particular, it develops and produces sensors that track motion in three dimensions, which are used in many cutting-edge technologies. Xsens, a company acquired by Fairchild in 2014, works on sensors that guide unmanned submarines and drones and help in maritime surveillance.
Despite the difficult climate, Chinese bids for American companies seem likely to increase, affected by a slowing Chinese economy and concerns about the devaluation of the renminbi. In the sensitive microchip sector, deals are also being driven by more than $100 billion set aside by the Chinese government to help the country improve the sophistication and scale of the critical industry.
The number of deals involving a Chinese company that is trying to buy an overseas chip maker rose from just eight in 2010 to 21 last year, including the offer for Fairchild, according to the data company Dealogic. There have already been five this year, worth $857 million.
That has drawn more attention to the United States committee, also known as Cfius. An interagency body that includes representatives from the Treasury, Justice and Defense Departments, Cfius can block foreign deals made for American companies, or companies connected to the United States, on grounds of national security.
Many in the semiconductor industry are watching closely to see whether Cfius will investigate a bid by the Chinese chip maker Tsinghua Holdings for a stake in the American hard disk drive maker Western Digital.
A lack of an investigation could herald more moves by Chinese investors to take smaller, minority stakes in American chip and memory companies.
The potential Chinese buyers of Fairchild had already agreed to pay a $108 million termination fee if the deal did not get approval from Cfius. They also increased their offer to $22 a share after Fairchild raised concerns. But Fairchild's transaction committee said an agreement would still be too risky.
The Fairchild board said in a regulatory filing on Tuesday that it found the higher offer attractive but that there was "nonnegligible risk of a failure to obtain Cfius approval."
Fairchild works on several technologies that could have raised concerns. In particular, it develops and produces sensors that track motion in three dimensions, which are used in many cutting-edge technologies. Xsens, a company acquired by Fairchild in 2014, works on sensors that guide unmanned submarines and drones and help in maritime surveillance.
Although Cfius can block deals, it can also broker compromises in which companies enact special security checks for sensitive aspects of an acquisition or sell off those assets.
Shares of ON Semiconductor closed up more than 6 per cent on Tuesday, when Fairchild announced that it still favored the American company's bid. Fairchild's stock dropped almost 3 per cent.
© 2016 The New York Times News Service
Fairchild had said in early January that it expected the bid from China Resources Microelectronics - a unit of the state-owned China Resources Holdings - and Hua Capital Management to be a "superior proposal." That offer amounted to $21.70 a share in cash, compared with the $20 a share that ON Semiconductor, an American company, had on the table. But worries about the likelihood of approval from the Committee on Foreign Investment in the United States outweighed the attractiveness of the bid.
Concerns about Chinese efforts to buy semiconductor technology have grown in Washington - such chips work as the brains for a variety of sophisticated electronic systems, including military hardware. These fears recently prompted officials to block a $2.9 billion deal for Chinese investors to buy a controlling stake in a unit of the Dutch electronics company Philips.
Fairchild's decision shows the effect of broader political suspicion in the United States toward Chinese investment in the high-tech sector. Last summer a similar, but much larger, deal was derailed before it made it to regulators. The $23 billion bid for the American memory chip maker Micron by a Chinese state-controlled firm was undone by concerns about its political feasibility.
In that case, Senator Chuck Schumer, Democrat of New York, voiced worries about the deal's effect on national security in a public letter to Treasury Secretary Jacob J Lew.
Fairchild works on several technologies that could have raised concerns. In particular, it develops and produces sensors that track motion in three dimensions, which are used in many cutting-edge technologies. Xsens, a company acquired by Fairchild in 2014, works on sensors that guide unmanned submarines and drones and help in maritime surveillance.
Despite the difficult climate, Chinese bids for American companies seem likely to increase, affected by a slowing Chinese economy and concerns about the devaluation of the renminbi. In the sensitive microchip sector, deals are also being driven by more than $100 billion set aside by the Chinese government to help the country improve the sophistication and scale of the critical industry.
The number of deals involving a Chinese company that is trying to buy an overseas chip maker rose from just eight in 2010 to 21 last year, including the offer for Fairchild, according to the data company Dealogic. There have already been five this year, worth $857 million.
That has drawn more attention to the United States committee, also known as Cfius. An interagency body that includes representatives from the Treasury, Justice and Defense Departments, Cfius can block foreign deals made for American companies, or companies connected to the United States, on grounds of national security.
Many in the semiconductor industry are watching closely to see whether Cfius will investigate a bid by the Chinese chip maker Tsinghua Holdings for a stake in the American hard disk drive maker Western Digital.
A lack of an investigation could herald more moves by Chinese investors to take smaller, minority stakes in American chip and memory companies.
The potential Chinese buyers of Fairchild had already agreed to pay a $108 million termination fee if the deal did not get approval from Cfius. They also increased their offer to $22 a share after Fairchild raised concerns. But Fairchild's transaction committee said an agreement would still be too risky.
The Fairchild board said in a regulatory filing on Tuesday that it found the higher offer attractive but that there was "nonnegligible risk of a failure to obtain Cfius approval."
Fairchild works on several technologies that could have raised concerns. In particular, it develops and produces sensors that track motion in three dimensions, which are used in many cutting-edge technologies. Xsens, a company acquired by Fairchild in 2014, works on sensors that guide unmanned submarines and drones and help in maritime surveillance.
Although Cfius can block deals, it can also broker compromises in which companies enact special security checks for sensitive aspects of an acquisition or sell off those assets.
Shares of ON Semiconductor closed up more than 6 per cent on Tuesday, when Fairchild announced that it still favored the American company's bid. Fairchild's stock dropped almost 3 per cent.
© 2016 The New York Times News Service