By David McLaughlin and Jennifer Jacobs
President Donald Trump blocked a Chinese-backed investor from buying Lattice Semiconductor Corp., a personal rebuke that bodes poorly for several other Chinese buyers seeking U.S. security clearance for their acquisitions.
It was just the fourth time in a quarter century that a U.S. president has ordered a foreign takeover of an American firm stopped because of national-security risks. Trump acted on the recommendation of a multi-agency panel, the White House and the Treasury Department said Wednesday. The spurned buyer, Canyon Bridge Capital Partners LLC, is a private-equity firm backed by a Chinese state-owned asset manager.
The Trump administration has maintained the U.S.’s tough stance against Chinese takeovers of American businesses even as it seeks China’s help to resolve the North Korean nuclear crisis. Other Chinese deals under review include MoneyGram International Inc.’s proposed sale to Ant Financial, the financial-services company controlled by Chinese billionaire Jack Ma. The government is also examining an agreement by Chinese conglomerate HNA Group Co. to buy a stake in SkyBridge Capital LLC, the fund-management company founded by Anthony Scaramucci, who was briefly Trump’s White House communications director.
“Consistent with the administration’s commitment to take all actions necessary to ensure the protection of U.S. national security, the president issued an order prohibiting the acquisition,” Treasury Secretary Steven Mnuchin said in a statement.
In Beijing, Ministry of Commerce spokesman Gao Feng told reporters at a briefing Thursday that security checks shouldn’t be used as a protectionist tool and that the U.S. should create a fair and transparent business environment.
MoneyGram shares fell as much as 4.4 percent in after-market trading, while Lattice shares sank as much as 1.7 percent. Shares of Genworth Financial Inc., which has a $2.7 billion sale to China Oceanwide Holdings Group Co. pending U.S. approval, fell 2.7 percent.
Canyon Bridge said in an emailed statement it was disappointed with the decision and would stay focused on other investment opportunities. Lattice said in a statement that the acquisition was being terminated after the president’s order.
“The transaction with Canyon Bridge was in the best interests of our shareholders, our customers, our employees and the United States,” Lattice Chief Executive Officer Darin G. Billerbeck said in the statement. “We will continue to focus on initiatives that will contribute to Lattice’s long term success.”
Billerbeck came to Washington two weeks ago to make a last-ditch effort to persuade government officials to support the deal, Bloomberg reported. Lattice and Canyon Bridge had proposed measures they said would address U.S. concerns while allowing the deal to proceed, according to that report.
Lattice makes programmable logic chips, which have a wide variety of uses because their attributes can be changed using software. The chips are used in communications, computing, and in industrial and military applications. The company generates more than 70 percent of its revenue in Asia, according to data compiled by Bloomberg.
Trump’s move builds on years of U.S. opposition to China’s efforts to bolster its chip industry by buying American technology. China, the world’s largest chip market, has been on the hunt for acquisitions in the field as it looks to build a domestic supply and rely less heavily on imports, as the $300 billion global semiconductor industry undergoes its biggest wave of consolidation. U.S. officials worry that China’s investment push could threaten the competitiveness of American industry and give Beijing access to cutting-edge technology with commercial and military applications.
The national-security risks posed by the deal included “the Chinese government’s role in supporting this transaction, the importance of semiconductor supply chain integrity to the United States government, and the use of Lattice products by the United States government,” the White House said.
Lattice, based in Portland, Oregon, went to uncommon lengths in hopes of saving its $1.3 billion sale to Canyon Bridge, which was first announced in November. Acquisitions of U.S. companies like Lattice by overseas buyers are reviewed by the Committee on Foreign Investment in the U.S., a panel staffed by senior officials from the Treasury, State, Homeland Security and Defense departments. CFIUS can bless deals or recommend changes to address security concerns. If it doesn’t like a deal, it can recommend the president block it.
But the process rarely gets that far. It’s more common for companies to walk away from a transaction once the secretive panel — which doesn’t comment publicly on its work — indicates it won’t approve it, rather than risk being branded a security threat. While a president in theory could overrule the panel’s recommendation, the three previous proposals kicked up to the president since 1990 have been blocked as the panel advised.
In this instance, Lattice and Canyon Bridge refiled three times without winning approval before making the unusual decision to appeal to Trump in hopes of winning him over with a pledge to save jobs.
Lattice was Canyon Bridge’s first acquisition target. The fund’s mandate is to make investments in companies in the semiconductor industry mainly in the U.S., according to regulatory filings. Canyon Bridge is investing on behalf of a Chinese venture capital fund that is sponsored by China Reform Fund Management, a state-owned asset manager.
The proposed acquisition of Lattice was at least the third Chinese deal that has collapsed this year after failing to win approval from the security panel. The others are HNA’s investment in Global Eagle Entertainment Inc., an in-flight entertainment and internet-services provider, and T.C.L. Industries Holdings’ proposed purchase of Inseego Corp.’s mobile-broadband business.
The administration has been stepping up pressure on China for months over trade and other matters as relations have soured between the two countries. Trump said in April that the Commerce Department was investigating whether steel imports from China threaten national security. Then in August, the president directed the U.S. trade representative to consider investigating China over suspected intellectual property theft.
— With assistance by Miao Han