On November 3, Palo Alto-based (but Chinese-backed) private equity firm, Canyon Bridge Capital Partners, Inc. launched a bid to buyout Oregon-based semiconductors manufacturer, Lattice Semiconductors Corporation. Canyon Bridge is primarily backed by Beijing-based private equity firm, China Reform Fund Management, Ltd.
Canyon Bridge’s buyout offer of $1.3 billion constitutes a $8.30 per share cash payment (including debt), a bid that is a 30.3% premium to Lattice’s November 2 closing price. The overzealous offer calls into question the motivations behind the Chinese-backed bid.
Among other applications, Lattice manufactures communication chips that are used in cars, computers and mobile devices. China consumes 50% of the world’s semiconductor chip output and is clearly seeking to expand its production capacity (which presently stands at just 2.5%). It requires intellectual property to do so, which it is pursuing via an aggressive merger and acquisition strategy. The attempt to buy Lattice aligns with this objective.
China appears intent to reduce its dependence on Western technologies by building a global supply chain and gaining know-how through acquisitions. Ultimately, this could yield lower cost solutions, where chips are manufactured locally. Simultaneously, the sharing of information between business and government creates a risk of such technology serving a dual-use purpose (i.e., being used for both military and commercial purposes).
In 2012, Chinese nationals were arrested during an attempt to smuggle out of the United States dual-use programmable logic devices manufactured by Lattice. Two years following the incident, Tsinghua Group acquired a 6% share in the company — which fell under the 10% equity threshold that could have prompted an investigation by the Committee on Foreign Investment in the United States (CFIUS). This round, Capital Bridge has acknowledged the deal will likely have to undergo a CFIUS review.
A pattern of China’s aggressive outbound high-tech investments has raised concerns across the United States and Europe.
- In October 2016, the German government withdrew approval for Fujian Grand Chip Investment Fund’s buyout of German chip equipment maker, Aixtron, citing security concerns.
- In a recent bid approaching finalization, HNA Group is slated to acquire Ingram Micro, an American wholesale electronics distributor. Ingram Micro recently purchased Tampa-based cloud software company Concerto for $500,000.
- Midea acquired German robot manufacturer, Kuka, earlier in 2016..
- Jianguang Asset Management (JAC Capital) acquired RF Power from NXP Semiconductor.
- Huawei established an R&D facility in the UK for ICT chips.
Tssinghua Unigroup has been at the forefront of a number of these deals, including the following.:
- a design joint venture with Intel;
- a potential acquisition of a Taiwanese company (ChipMos);
- a bid for Micron Technology that was blocked due to CFIUS worries;
- the acquisition of a 3% stake in Imagination Technologies;
- a failed acquisition of Siliconware Precision;
- acquisition of a 25% stake in Powertech Technology; and
- a research agreement with Montage Technology.