MULTINATIONALS: Unigroup’s Micron Bid Falls Victim of Politics

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Bottom line: Unigroup’s bid for Micron may be near death due to lack of interest from Micron and growing US political opposition, though Unigroup could revive its pursuit after next year’s presidential election.

Unigroup abandons Micron bid?

The blockbuster deal that had China’s Tsinghua Unigroup mulling a bid for leading US memory chip maker Micron (Nasdaq: MU) appears to be near death, with neither side commenting on the situation more than a month after news of the courtship first broke. It’s now been 4 weeks now since we’ve heard anything on the $23 billion deal from either Micron or Unigroup, the ambitious microchip maker connected to Tsinghua University, China’s leading sciences university.

But Micron’s share price hasn’t stayed quiet during that time, and has moved steadily downward to its current level of about $17.20. That represents a drop of 14 percent from a recent high of $19.90 in late July, when investors were still hoping that Unigroup would make a bid at $21 per share. While neither side has commented on the deal lately, one powerful US senator did come out last week and express his opposition.

US Senator Charles Schumer wrote to the Obama administration, saying it should veto a purchase on national security grounds if Unigroup went ahead with its bid. (English article; Chinese article) Schumer voiced his concerns in a letter to US Treasury Secretary Jack Lew, saying he was particularly concerned about a Chinese company controlling a US-based counterpart that sold components for use in defense products.

In his letter Schumer also said the US should block such a deal until US tech firms get better access to the China market. That referred to recent new restrictions on many US tech firms selling into China, following Beijing’s passage of a new national security law. Schumer’s letter also said that China should improve its record on intellectual property protection before receiving the green light for a Unigroup deal.

The fact that this letter was deliberately leaked to the media hints of highly political motives, which certainly doesn’t look good for a deal that was already considered a longshot. We heard similar noises around this time 4 years ago in the year before the 2012 presidential elections. That period saw approval several major Sino-US deals delayed due to election year politicking, though most of the deals were passed in the end. (previous post)

Bad Timing

The year before an election is always troublesome for Chinese deal-making in the US, since China is an easy target for criticism by politicians running for office. In this case the Obama administration has less to worry about this time since Obama himself won’t run for office again. But he must still be careful not to harm his Democratic Party. Schumer himself is also a Democrat, meaning Obama could face criticism on a deal from his own party.

Media first reported Unigroup’s interest in buying Micron back in mid-July, and since then both companies have acknowledged there was some preliminary discussion but no formal offer. Micron reportedly was discouraging Unigroup from making a formal bid (previous post), while a Unigroup official said his company was still interested. I interpreted Micron’s message as a bargaining tactic for a better price, but perhaps that assessment was naive and didn’t factor in election year politics.

Schumer wasn’t the first US politician to express concerns about such a deal. Shortly after news of the plan first broke, Republican US Senator John McCain also said that such a deal should get a careful review if Unigroup made a formal offer. (previous post) Like Schumer, McCain is also a senior senator and quite widely respected in Congress.

Opposition from these 2 politicians, combined with the silence from both companies and Micron’s sagging share price, certainly don’t bode well for a deal, at least not in the next year. Election year politics are always tricky to navigate, and Unigroup is hardly an expert in the area. All that said, I expect that Unigroup may quietly shelve its courtship for now, if it hasn’t already done so. But it could still revive the bid after the current China-bashing dies down after next November’s election.

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