LDN - Business

Aixtron could revive takeover despite U.S. block: analysts

[December 05, 2016] By Ben Blanchard and Harro Ten Wolde

BEIJING/FRANKFURT (Reuters) - The sale of Aixtron to Chinese investors could go ahead under new terms if the German semiconductor equipment maker sells its Silicon Valley division to get around U.S. objections, analysts said Monday.

On Friday, U.S. President Barack Obama stopped Fujian Grand Chip Investment Fund (FGC) from buying Aixtron U.S., the division of the Germany company in California where nearly a fifth of its 713 workforce is based

While the 670 million euro ($717 million) deal is small, U.S. opposition is seen as a sign of growing concern in the West about the acquisition of cutting-edge technology by Chinese players and comes after Washington blocked the sale by Philips <PHG.AS> of its U.S. lighting business to Asian buyers.

The crux of the issue for Aixtron is that it makes devices which produce crystalline layers based on gallium nitride that are used as semiconductors in weapons systems.

The German firm's technology is being used to upgrade both U.S. and foreign-owned Patriot missile defense systems and the U.S. Treasury Department said on Friday the deal had been blocked due to national security risks.

Aixtron said, however, the U.S. order "was limited to the United States business and did not prohibit the acquisition of Aixtron shares", sparking hopes among analysts that a deal could be revived, albeit under revised terms.

"Chinese investors might be willing to take over Aixtron without its U.S. business including U.S. patents and patent applications," DZ Bank analyst Harald Schnitzer said in a client note. "That could be possible but we doubt that GCI would be prepared to pay 6 euros per Aixtron share in such a case."

Aixtron shares were down 2.1 percent at 3.75 euros by 1140 GMT, underperforming the STOXX Europe 600 Technology index and well below the 6 euros per share FGC offered in May.

The U.S. decision to block the Aixtron deal angered China, with the foreign ministry calling it "political obstruction".

Ministry spokesman Lu Kang said China had always supported Chinese firms investing overseas on the basis of market principles, international rules and respecting local laws, adding that the Aixtron deal was purely a commercial matter.

"China resolutely opposes the politicization of any normal commercial takeover or the wrong move of political obstruction," Lu told a news briefing, saying that China hoped the United States would stop making "groundless accusations" against Chinese firms and provide a fair environment for them.

Fujian Grand Chip could not immediately be reached for comment.

NATIONAL SECURITY

Analysts have said Aixtron has a bleak future as a stand-alone company as it struggles in an overcrowded market where Chinese companies call the shots.

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The logo of Aixtron SE is pictured on the roof of the German chip equipment maker's headquarters in Herzogenrath near the western German city of Aachen, October 25, 2016. REUTERS/Wolfgang Rattay/File Photo

Aixtron has also said it needs to cut costs and jobs if the deal falls through, while analysts said a white knight bidder for Aixtron such as U.S. chip equipment maker Applied Materials <AMAT.O> could emerge.

Another obstacle for the deal is that the German Economy Ministry withdrew its approval for the Chinese acquisition in October and is doing its own review of the transaction.

It said on Monday the process was independent of the U.S. review and would continue, without giving a timeline for presenting its conclusions.

"There is still a quite low probability of the deal going through as planned," a Frankfurt-based trader said. "But the ball is back in German court as the German Economy Ministry's review of the Chinese takeover bid is ongoing."

The U.S. Treasury Department said on Friday Obama was blocking the deal following an assessment by the Committee on Foreign Investment in the United States (CFIUS), an inter-agency task force that the department leads.

"The national security risk posed by the transaction relates, among other things, to the military applications of the overall technical body of knowledge and experience of Aixtron," the department said in a statement.

Aixtron makes so-called Metal-Organic Chemical Vapor Deposition (MOCVD) systems, used to grow crystalline layers for semiconductors, especially those based on gallium nitride.

Gallium nitride is a powdery yellow compound used in light-emitting diodes (LED), radar, antennas and lasers. Gallium nitride technology can boost the power of weapons systems while making them cheaper because it needs less electricity.

(Editing by David Clarke)

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