CHIPS: Chinese German Chip Buy Hits Regulatory Roadblock

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Bottom line: Growing national security concerns are likely to kill the pending purchase of Germany’s Aixtron by a Chinese buyer, and could also kill the pending sale of NXP’s standard products unit to a similar buyer.

Germany calls for review of Aixtron sale to China

A major cross-border chip deal that I failed to notice earlier this year is suddenly in doubt, with word that Germany has reversed course and wants a security review for the proposed sale of local chipmaker Aixtron (Frankfurt: AIXA) to a Chinese buyer. Such a move would mark the first potential killing of a cross-border chip deal in Europe, which would be following the US and Taiwan in voicing concerns about China’s sudden voracity for overseas makers of high-tech microchips.

In this case the buyer, a company called Fujian Grand Chip, is saying it has no connection with the Chinese government and is a privately owned fund controlled by businessman Liu Zhendong. But it’s becoming quite an open secret that Beijing is willing to provide cheap loans and other funding to anyone in China who wants to contribute to a build-up of the nation’s laggard microchip industry.

That sudden access to billions of dollars in funds has triggered a buying spree for global chip companies over the last 2 years by Chinese buyers, which are coming from quite a wide range of backgrounds. A number of those are private funds like Fujian Grand Chip, which were set up specifically for chip acquisitions. And even though many of those may be private in name, there’s little doubt that the billions of dollars in their coffers are coming from Beijing.

Fujian Grand Chip first announced its plan to buy Aixtron in May for 670 million euros ($728 million), representing a hefty 51 percent premium to the company’s trading price at that time. (English article) The deal apparently initially received the nod from German officials, following their similar clearance of another Chinese bid to buy leading local robotics maker Kuka around the same time.

But now media are reporting that Berlin has suddenly reversed course and said it wants to conduct a review of the Aixtron purchase for national security implications. (English article; Chinese article) The government ministry that will make the new review said it reversed its decision after determining that some of Aixtron’s technology was relevant to security, including for the defense sector.

Deal Still Alive

Fujian Grand Chip has responded by saying the notice doesn’t mean the deal is dead, and that it will continue to pursue the investment. Aixtron’s business includes production of machines for making light-emitting diodes (LEDs), as well as memory and power management chips.

This particular deal comes as another similar Chinese investor is in the process of buying the standard products division of Netherlands-based NXP (Nasdaq: NXPI) for nearly $3 billion. The pair in that deal announced earlier this month that the sale had received clearance from the US national security regulator. (previous post) Media have also reported over the last week that NXP is in talks to sell its remaining business to US chip giant Qualcomm (Nasdaq: QCOM).

An online search on European approval of the NXP-China deal failed to produce any results, leading me to believe that deal also has yet to receive the final green light from regulators in the Netherlands and the European Union. We haven’t heard any noises about possible rejection of that deal, and when the 2 sides announced the US security clearance earlier this month they said they expect the transaction to close by the first quarter of 2017.

A veto of the Aixtron or NXP deals would be a first for Europe, but certainly not the rest of the world. National security concerns previously killed plans by Chinese buyers to invest in leading US memory chip maker MIcron (Nasdaq: MU) and hard disk driver maker Western Digital (Nasdaq: WDC). Related developments are occurring in Taiwan, where Chinese buyers are pursuing similar investments. At the end of the day, the emerging message appears to be growing unease about China’s recent chip-buying aspirations, and I do expect such concerns could ultimately kill one or both pending deals in Europe.

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