September 14, 2017

National Security: President Blocks Deal with China-Backed Fund

Yesterday, President Trump acted on the recommendation of CFIUS and issued an executive order blocking Canyon Bridge Capital Partners’ proposed $1.3 billion acquisition of Lattice Semiconductor.  While Canyon Bridge is a US buyout fund, this Reuters article notes that it is partially funded by China’s central government & has indirect links to the country’s space program.

It’s been tough sledding for China-backed buyers of US semiconductor businesses in recent months – President Trump’s actions follow on the heels of President Obama’s decision to block another Chinese semiconductor deal last December. This Wilson Sonsini memo points out that these actions reflect bipartisan concerns about China’s investments in the sector:

The U.S. government has been expressing broad concerns with Chinese acquisitions of semiconductor companies for some time. As we noted in a previous WSGR Alert, President Obama’s Council of Advisors on Science and Technology (PCAST) released a public report in January 2017 entitled “Ensuring Long-Term U.S. Leadership in Semiconductors.” In an unusually direct statement, the PCAST stated that “Chinese industrial policies in [the semiconductor] sector…pose real threats to semiconductor innovation and U.S. national security. The report recommended heightened scrutiny of China-backed investments in the semiconductor industry.

Further, in November 2016, then-Commerce Secretary Penny Pritzker directly criticized China’s plans for the acquisition of semiconductor companies, stating that China’s “unprecedented state-driven interference would distort the market and undermine the innovation ecosystem” in the semiconductor industry. Additionally, the proposed acquisition of Lattice by Canyon Bridge faced significant bipartisan opposition from U.S. lawmakers shortly after it was announced. In December, 2016, over 20 members of Congress wrote a letter to the Treasury Secretary requesting that the transaction be blocked due to national security concerns.

As we’ve previously blogged, CFIUS review sometimes results in decisions by the parties to abandon their deals – but the decision to block the Lattice Semiconductor deal marks only the 4th time that an American president has blocked an acquisition on national security grounds.

John Jenkins