US regulators have blocked the $580m acquisition of a semiconductor testing company by a Chinese state-backed fund, the latest technology-related deal to be halted amid heightened scrutiny of foreign investments under President Donald Trump.
Massachusetts-based Xcerra said on Thursday it had terminated the agreement to be acquired by an affiliate of Sino IC Fund, which manages a $20bn state-backed Chinese fund established in 2014 to help develop the nation’s integrated circuit and electronics industries.
“Despite our best efforts to secure approval, it has become evident that Cfius will not clear this transaction,” said Dave Tacelli, Xcerra chief executive, referring to the Committee on Foreign Investment in the United States.
The US has a longstanding sensitivity about Chinese investments in the country’s semiconductor sector, which makes technology that can have military uses. A growing number of Chinese investments in US companies have failed to win approval because of a slowdown in Washington’s national security review process and bubbling trade tension between Beijing and the Trump administration.
Cfius is an inter-agency committee chaired by the US Treasury secretary that is tasked with reviewing the national security implications of foreign investments in American companies.
In September it blocked the $1.3bn acquisition of Lattice Semiconductor by a group of investors that included state-controlled China Venture Capital Fund on national security grounds. It blocked another attempted Chinese takeover of a semiconductor company, Aixtron, in December 2016.
Xiao Yong, a Hong Kong-based partner at Dechert, a law firm, said that the blocking of the Xcerra deal was “surprising” because it was a semiconductor testing company rather than a producer of chips like Lattice and Aixtron.
“Chips are more sensitive technologically for the US,” he said. “This is the first case we see with the acquisition of an upstream equipment tester blocked by the US government.”
Mr Xiao added that intensifying scrutiny from Cfius would deter future Chinese acquisitions in the sector and hold back China’s ambitions.
Developing the semiconductor industry is a key objective of Chinese president Xi Jinping’s Made in China 2025 strategy to turn the world’s biggest exporter of manufactured goods into a leading high-technology player.
But the plan — and China’s appetite for acquiring technology companies and intellectual property in the US and Europe — has met growing opposition because of concerns that Beijing is not offering a level playing field for foreign companies investing in China.
In April 2017, Xcerra agreed to be acquired for $580m by Unic Capital Management, a subsidiary of state-backed Sino IC Capital. Sino IC Capital manages the China Integrated Circuit Fund, which is backed by a range of leading state companies including China Mobile and China Development Bank.
Xcerra makes testing equipment for the semiconductor and electronics manufacturing industry.
Mr Tacelli said the acquisition would have helped Xcerra accelerate growth in the Chinese market.
He said that while he was “disappointed” by the outcome, the company and its would-be acquirer were still “discussing alternatives to pursue opportunities in new and existing markets in China”.
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