The Committee on Foreign Investment in the United States (CFIUS) recently sought to temporarily halt the acquisition of a South Korea-based semiconductor company by a Chinese private equity firm, a kind of regulatory move that is likely to continue to be a significant weapon in the intensifying technology and economic war between the U.S. and China.
The Chinese firm, Wise Road Capital, is attempting a $1.4 billion acquisition of Magnachip Semiconductor Corp., which is based in South Korea, and is among the leaders in the worldwide market for OLED display driver integrated circuits. Magnachip reportedly does not have significant business presence in the U.S. market, but is listed on the New York Stock Exchange. In recent weeks, CFIUS moved to halt the deal while it reviewed potential national security threats. Meanwhile, Chinese regulators approved the deal just last week and South Korea regulators are still considering it.
Notably, CFIUS was the agency that former President Donald Trump used to investigate TikTok’s China-based parent company before issuing an executive order mandating that company divest its TikTok stake for TikTok to continue doing business in the U.S. While President Biden recently revoked that executive order and others Trump made, the move to block the Magnachip deal suggests that the Biden administration is using CFIUS in a similar way and with the same or greater assertiveness as the previous administration--as a particularly aggressive watchdog in the technology and economic war with China.
CFIUS was given an expanded purview under the Trump administration, and issued more notices and declarations between 2017 and 2020 than it had in previous years, according to the Peterson Institute on International Economics. There have been indications for several months, based on reports in The Wall Street Journal and elsewhere that Biden would keep the agency busy as well.
“CFIUS’ move to put a hold on the Magnachip deal, while somewhat rare, comes as no surprise to experienced practitioners,” said Scott Flicker, a global trade lawyer with Washington, D.C.-based Paul Hastings, via email. “The U.S. government is simply not going to permit any acquisition by a Chinese buyer of a company operating in the semiconductor sector to conclude without first subjecting the matter to close scrutiny, if it has any jurisdiction to do so.”
It’s possible--though not entirely clear--that the parties involved in this deal may have tried to close the acquisition without subjecting it to CFIUS review. Flicker called that “a high-risk strategy in the current environment,” adding, “They may have determined that the transaction did not trigger a requirement for a mandatory filing under CFIUS’s regulations, but the calculus not to file must also take into account the fact that CFIUS has greatly enhanced its capability to monitor deal flow and has shown an increased willingness to intervene if it identifies a transaction of potential concern. That is what may have happened here.”
Flicker also pointed out that the U.S. government is increasing coordination with its allies to restrict Chinese acquisition of strategic technologies, particularly in the telecommunications, semiconductor, and information technology sectors. “It would not surprise me to learn that the U.S. was in touch with the South Korean government on the transaction and may have even been tipped off in that way,” he said.
While the U.S. government may be increasingly leveraging its ability to tie up deals in those sectors by Chinese companies, international regulatory approvals are a two-way street. Chinese regulators have yet to act on U.S.-based Nvidia’s proposed $40 billion acquisition of Arm, and questions have lingered over when or if that approval will be gained. China also has a say in AMD’s acquisition of Xilinx.
More than ever, the semiconductor industry is becoming a central battlefield in this new type of Cold War.
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