5 December 2016

Obama bars Fujian Grand Chip's takeover of Aixtron's US business

Following advice from the Committee on Foreign Investment in the United States (CFIUS), which is chaired by the US Department of the Treasury, on 2 December President Barack Obama issued an executive order prohibiting the acquisition of the US business of deposition equipment maker Aixtron SE of Herzogenrath, Germany by Grand Chip Investment GmbH (GCI), a German limited liability company set up as a special-purpose investment vehicle ultimately owned by investors in China (some of whom have Chinese government ownership). The order directs the purchasers and Aixtron to permanently abandon the proposed acquisition within 30 days (unless the date is extended by CFIUS for a period of up to 90 days).

Aixtron agreed in late May to the takeover by GCI. GCI's China-based parent firm Fujian Grand Chip Investment Fund LP is held 51% by Chinese businessman & private investor Zhendong Liu and 49% by Xiamen Bohao Investment Ltd (an investment entity indirectly controlled by Chinese private investors Zhongyao Wang and Wanming Huang). Fujian Grand Chip (FGC) hence said that it would launch a voluntary public takeover offer to acquire all of the outstanding ordinary shares of Aixtron SE, including all ordinary shares represented by Aixtron ADS (American depositary shares). Shareholders would be offered €6 per ordinary share, valuing Aixtron's equity (including net cash) at about €670m and reflecting a 50.7% premium to the three-month volume weighted average share price prior to the announcement.

However, on 21 October the German Federal Ministry of Economics and Energy withdrew the Clearance Certificate issued on 8 September to FGC and reopened review proceedings in connection with the acquisition, citing that Aixtron's know-how comprises security-related technologies (in particular for the defense sector) that could be revealed through the acquisition.

Including its subsidiary Aixtron Inc in California, Aixtron's US business in 2015 comprised nearly 20% of the company's entire staff and accounted for more than 20% of Aixtron's global sales.

The US Treasury Department says that FGC's proposed acquisition of Aixtron was to have been funded in part by Sino IC Leasing Co Ltd, a financing provider belonging to China IC Industry Investment Fund, a Chinese government-supported industrial investment fund established to promote the development of China's integrated circuit industry.

Obama took the action pursuant to section 721 of the Defense Production Act of 1950, which authorizes him to suspend or prohibit acquisitions of US businesses by foreign concerns where he finds that there is credible evidence that the foreign interest exercising control might take action that threatens to impair national security.

CFIUS and the President assess that the transaction poses a risk to the USA's national security that cannot be resolved through mitigation. The risk relates to the "military applications of the overall technical body of knowledge and experience of Aixtron… and the contribution of Aixtron's US business to that body of knowledge and experience". Aixtron makes metal-organic chemical vapor deposition (MOCVD) systems for growing semiconductors including gallium nitride (GaN), used in the manufacturing of not only light-emitting diodes (LEDs) but also, it is said, defense electronics.

CFIUS' purpose is to review transactions that could result in the control of a US business by a foreign person, in order to determine the effect of such transactions on the national security of the USA. CFIUS also received analysis of the threat posed by the transaction from the Office of the Director of National Intelligence.

In response to Obama's presidential order, on 2 December China's Foreign Ministry spokesman Geng Shuang commented regarding the acquisition deal: "Since it's a normal commercial activity, it will be carried out following the rule of markets and business," according to a Reuters report. "We hope the external parties will not over-interpret that or make any political intervention," he added.

On 3 December, Aixtron noted that Obama's presidential order was limited to the US business and did not prohibit the acquisition of Aixtron shares and ADSs by GCI. Aixtron says that, together with GCI, it is evaluating the order's impact on the conditions to be fulfilled under the takeover offer and will coordinate with the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungs-aufsicht/BaFin) to examine the consequences on the takeover process. However, according to Reuters, Aixtron says, in response to Obama's presidential order blocking its acquisition by FGC, action needs to be taken to re-balance costs and income, possibly including cutting jobs. At the end of third-quarter 2016, Aixtron had 713 staff worldwide (including 136 in the USA).

See related items:

CFIUS advises US President to prohibit Grand Chip's takeover of Aixtron

Aixtron returns to positive free cash flow in Q3, boosted by sales of AIX R6 system inventory

Germany withdraws clearance of Grand Chip Investment's takeover of Aixtron

Aixtron agrees €670m takeover by Fujian Grand Chip Investment Fund

See: Aixtron Company Profile

Tags: Aixtron MOCVD

Visit: www.whitehouse.gov/the-press-office/2016/12/02/presidential-order

Visit: www.aixtron.com