Canada Markets closed

Trump Advised to Halt Infineon Deal Amid China Security Risk

Saleha Mohsin, David McLaughlin and Jenny Leonard

(Bloomberg) -- U.S. national security officials are recommending that President Donald Trump block Infineon Technologies AG’s proposed acquisition of Cypress Semiconductor Corp., according to people familiar with the matter.

The officials are concerned that Infineon’s $8.7 billion deal for the American chipmaker poses a risk to national security, said three people familiar with the matter. Infineon, a German semiconductor maker with substantial Chinese revenue, has tried to negotiate an agreement with the government that would let the takeover proceed, but hasn’t been able to reach a deal, one of the people said. All of the people asked not to be named discussing a national security matter.

It wasn’t clear why officials with the Committee on Foreign Investment in the U.S., which reviews foreign takeovers of U.S. businesses, see a national security risk from the deal. The panel, however, is particularly sensitive to any transaction that could allow Chinese buyers to get their hands on advanced American technology.

Read more: About CFIUS, Trump’s Watchdog on China Deals: QuickTake

Cypress shares fell as much as 21% earlier before closing down 17.4 percent at $19.18. The shares dropped an additional 10% in extended trading on Thursday. Infineon fell as much as 5% in trading in Frankfurt on Friday.

Cfius, which is led by the Treasury Department, can recommend the president block deals to protect national security. Congress gave the panel enhanced powers in 2018 to scrutinize foreign investment in U.S. companies.

The Cypress deal would catapult Infineon into the top 10 of global chipmakers based on sales. Infineon derives a third of its sales from China, according to data compiled by Bloomberg.

The White House’s National Security Council and Cypress declined to comment. Infineon didn’t immediately respond to requests for comment. Cfius as a policy never comments on its reviews.

Infineon told investors on an earnings call last month that it was negotiating a potential settlement for the deal.

“We have a very good understanding about the requirements of U.S. government, what they expect and we are working together with them in order to resolve that,” Infineon Chief Executive Officer Reinhard Ploss said. “Our expectation is that we find a setup, which is supporting our revenue synergies.”

Cypress, based in San Jose, sells components to the defense industry, although its products are not considered particularly sensitive. The company’s website highlights several offerings that are either suitable or designed for aerospace and defense customers, including “defense grade memory” parts that can “withstand military operating temperature ranges.”

The Trump administration has toughened its review of foreign acquisitions of U.S. businesses, particularly technology companies. Trump has blocked two takeovers on national security grounds, Broadcom Inc.’s hostile takeover of Qualcomm Inc. and Lattice Semiconductor Corp.’s sale to a Chinese-backed investor.

In 2017, Infineon tried to buy Wolfspeed, a semiconductor unit of U.S.-based Cree Inc., but the the deal was blocked by Cfius. Wolfspeed manufactures a type of semiconductor increasingly used in telecommunications and radar systems.

(Updates with Cypress, Infineon shares in fourth paragraph)

--With assistance from Ian King and Joshua Fineman.

To contact the reporters on this story: Saleha Mohsin in Washington at smohsin2@bloomberg.net;David McLaughlin in Washington at dmclaughlin9@bloomberg.net;Jenny Leonard in Washington at jleonard67@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, ;Alex Wayne at awayne3@bloomberg.net, ;Margaret Collins at mcollins45@bloomberg.net, Paula Dwyer, Alistair Barr

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.