The common wisdom is that CFIUS will not clear any China-related semiconductor deal. This isn’t true – Chinese acquisitions of US semiconductor companies have cleared at about the same rate—60%--as other technology deals during the Trump Administration. See our earlier 60-Second CFIUS on the CFIUS statistics during the Trump Years.
It still comes as good news that CFIUS has cleared the $1.8 billion acquisition of Kemet Corporation, a US manufacturer of capacitors, such as; tantalum, aluminum, multilayer ceramic, film, paper, polymer electrolytic, and supercapacitors (www.kemet.com), by the Taiwanese company Yageo (www.yageo.com).
Yageo is not a PRC company, but it has close ties to China, including three manufacturing facilities. CFIUS recently has held up or prohibited a number of deals that appeared to have PRC connections, even though the foreign party was not actually a Chinese company or controlled by China. For example, Infineon’s acquisition of US-based Cypress Semiconductor was delayed for months, reportedly because of concerns about the German company’s ties with Huawei. An earlier attempt to acquire the Wolfspeed subsidiary of semiconductor company Cree, Inc., failed in 2017, perhaps because of similar concerns. And, in 2018, CFIUS blocked a takeover of US-based Qualcomm by Broadcom, which is not a Chinese company, apparently because of concerns about Broadcom’s ties to China and the impact a Qualcomm takeover would have on the competitive position of Huawei—a company not involved in the deal at all.
It is possible the semiconductor industry is just hungry for good news. Semiconductor companies, long considered a dull investment by US venture capitalists, are hot items for Asian investors. The eventual clearance of the Cypress acquisition, and this recent clearance of the Kemet deal, suggest that not all China-connected semiconductor deals are dead on arrival. The right tech deal can still make it through CFIUS; and when that looks too difficult, investors are finding new ways to achieve the parties’ commercial objectives without triggering US national security concerns, through licensing, joint venture and other structures that do not give foreign persons control over a US business.
The 60-second takeaway is that Asian investment in the semi space is far from dead. Parties must be flexible, creative, and persevere.
Coming next: Structuring to avoid a filing requirement