Bottom line: US national security regulators are likely to approve the potential purchase of Micron by China’s Tsinghua Unigroup, to demonstrate their commitment to fair trade and avoid politicizing cross-border high-tech M&A.
In the days after reports emerged that China’s Tsinghua Unigroup was planning a bid for US memory chip giant Micron (NYSE: MU), media have been buzzing with speculation over whether Washington might veto a deal on national security grounds. I can understand the logic from both views, and some say recent US allegations of frequent hacking attacks from China could add to arguments for a veto of the deal.
But as a longtime watcher of this kind of transaction, I expect that Washington will ultimately approve the purchase to demonstrate its commitment to fair trade. Such a move would also send a strong signal to Beijing, which is showing growing signs of limiting sales by foreign technology companies in China with its recent introduction of a sweeping new national security law.
There’s no doubt that Washington and Beijing have a stormy relationship when it comes to cross-border technology issues. But for the most part, the US has taken a hands-off approach to M&A of American tech companies by Chinese peers except for in a small number of cases that I’ll review shortly.
Before I do that, let’s quickly review the details on the planned bid for Micron by Tsinghua Unigroup, a chipmaker that is part of Tsinghua University, China’s leading sciences university. Media have reported that Unigroup is preparing a bid of $21 per share for Micron, in a deal that would value the company at around $23 billion. (previous post) Micron is the largest US maker of memory chips, in an industry lead by Korea’s Samsung (Seoul: 005930).
The memory chip sector is somewhat unique because it is highly commoditized in some ways, though it also contains cutting-edge technology that is a crucial component in most of the world’s electronic gadgets. That status is leading some to say the US will ultimately approve the deal, since much of Micron’s technology is already diffused throughout the global memory chip industry. (English article) But others say that Washington might be reluctant to give control of Micron to a Chinese company, especially in light of steady recent allegations that many of the world’s biggest hacking attacks are coming from China.
All that said, let’s review some of the biggest Sino-US technology trade issues that could provide clues about what’s in store for a Unigroup bid for Micron, if such an offer actually comes. Two of the most sensitive issues involve leading Chinese telecoms products maker Huawei. One of those saw Huawei banned from selling its networking equipment in the US, and the other saw its planned purchase of a small US technology company collapse several years ago over national security concerns.
While those examples look bad for a Micron deal, there are also some more positive cases where Washington has approved similarly sensitive transactions. Three of those involve Chinese PC giant Lenovo (HKEx: 992), which was allowed to purchase IBM’s (NYSE: IBM) PC business and later IBM’s low-end server unit. Last year Lenovo was also allowed to purchase the Motorola smartphone business from Google (Nasdaq: GOOG).
Washington also approved the sale of new-energy battery maker A123 Systems to a Chinese buyer 2 years ago, though only after A123 spun off part of its business that did work for the US defense department. In the meantime, Washington has also approved several other politically sensitive deals that could have been vetoed on national security grounds, including the 2013 sale of leading US pork Smithfield to Chinese buyer WH Group (HKEx: 288), previously called Shuanghui.
The broader trend seems to show that the US national security regulator is trying to make decisions based on rational factors and avoid political considerations. One risk factor could be the upcoming US election next year, which can sometimes cause this kind of decision to become politicized as politicians seek to curry favor with voters. But I’m relatively optimistic that such politics won’t become involved in this instance, and that a Micron sale will ultimately get approved if Unigroup makes a good offer.