US blocks Chinese acquisition of chip equipment maker

US semiconductor testing company Xcerra Corp said that a US national security panel had blocked its $580 million sale to a Chinese state-backed semiconductor investment fund, the latest such deal to be thwarted.

Xcerra said on Thursday that "despite our best efforts to secure approval, it has become evident that" the Committee on Foreign Investment in the US (CFIUS) wouldn't clear the transaction. CFIUS scrutinizes deals for potential national security concerns.

The acquisition of Norwood, Massachusetts-based Xcerra by Hubei Xinyan was seen as a key test of the ability of Chinese firms to acquire US technology assets, because the company does not manufacture chips itself. Instead, it provides testing equipment used in the production of semiconductors.

The deal's demise comes as the Committee on Foreign Investment in the United States (CFIUS) has become increasing skeptical of Chinese acquisitions of US companies following the inauguration o President Donald Trump a year ago.

"While we are disappointed that we were not able to receive approval from CFIUS on this transaction, Xcerra and Xinyan are discussing alternatives to pursue opportunities in new and existing markets in China," Xcerra CEO Dave Tacelli said in a statement.

CFIUS blocked the deal because it was concerned that Xcerra equipment was used by chip manufacturers that were part of the supply chain to the US government and military, according to people familiar with the matter who asked not to be identified discussing confidential deliberations.

A Treasury spokesman did not respond to a request for comment on behalf of CFIUS.

Xcerra had announced the deal in April 2017. Xinyan does not have to pay Xcerra a breakup fee as a result of CFIUS blocking the deal, according to their merger contract. Such breakup fees are customary in deal negotiations.

Xinyan is a limited partnership formed for the merger. Technology investor Unic Capital Management Co, an affiliate of Sino IC Capital, is the controlling shareholder of Xinyan's general partner.

CFIUS' stance has toughened as Trump seeks to put pressure on China to help tackle North Korea's nuclear ambitions and be more accommodative on trade and foreign exchange issues. Unfilled political vacancies at several government departments and agencies have also made it more difficult for CFIUS to approve deals.

CFIUS has been traditionally wary of semiconductor deals with Chinese entities, because it is concerned about the transfer of potentially sensitive technology.

Canyon Bridge Capital Partners LLC, a U.-based private equity firm funded by the Chinese government, saw its $1.3 billion acquisition of US chip maker Lattice Semiconductor Corp collapse last year after it was blocked by CFIUS, a rejection subsequently upheld by Trump.

Beijing-based Naura Microelectronics Equipment Co Ltd completed a deal in December to buy US semiconductor manufacturing equipment company Akrion Systems LLC, a rare instance of CFIUS approving such an acquisition. However, that deal was only for $15 million.

REUTERS