February 23, 2018 / 12:59 AM / in a month

U.S. blocks chip equipment maker Xcerra's sale to Chinese state fund

Feb 22 (Reuters) - U.S. semiconductor testing company Xcerra Corp said on Thursday that a U.S. national security panel had blocked its $580 million sale to a Chinese state-backed semiconductor investment fund, the latest such deal to be thwarted.

The acquisition of Xcerra by Hubei Xinyan was seen as a key test of the ability of Chinese firms to acquire U.S. technology assets, because the company does not manufacture chips itself. Instead, it provides testing equipment used in the production of semiconductors.

The deal’s demise comes as the Committee on Foreign Investment in the United States (CFIUS) has become increasing skeptical of Chinese acquisitions of U.S. companies following the inauguration of U.S. President Donald Trump a year ago. CFIUS scrutinizes deals for potential national security concerns.

“While we are disappointed that we were not able to receive approval from CFIUS on this transaction, Xcerra and Xinyan are discussing alternatives to pursue opportunities in new and existing markets in China,” Xcerra CEO Dave Tacelli said in a statement.

CFIUS blocked the deal because it was concerned that Xcerra equipment was used by chip manufacturers that were part of the supply chain to the U.S. government and military, according to people familiar with the matter who asked not to be identified discussing confidential deliberations.

A Treasury spokesman did not respond to a request for comment on behalf of CFIUS.

Xcerra had announced the deal in April 2017. Xinyan does not have to pay Xcerra a breakup fee as a result of CFIUS blocking the deal, according to their merger contract. Such breakup fees are customary in deal negotiations.

CFIUS’ stance has toughened as Trump seeks to put pressure on China to help tackle North Korea’s nuclear ambitions and be more accommodative on trade and foreign exchange issues. Unfilled political vacancies at several government departments and agencies have also made it more difficult for CFIUS to approve deals.

CFIUS has been traditionally wary of semiconductor deals with Chinese entities, because it is concerned about the transfer of potentially sensitive technology.

Canyon Bridge Capital Partners LLC, a U.S.-based private equity firm funded by the Chinese government, saw its $1.3 billion acquisition of U.S. chip maker Lattice Semiconductor Corp collapse last year after it was blocked by CFIUS, a rejection subsequently upheld by Trump.

Beijing-based Naura Microelectronics Equipment Co Ltd did manage complete a deal in December to buy U.S. semiconductor manufacturing equipment company Akrion Systems LLC, a rare instance of CFIUS approving such an acquisition. However that deal was only for $15 million.

The most high-profile Chinese acquisition of a U.S. company to be shot down by CFIUS since Trump came in office was Ant Financial’s acquisition of U.S. money transfer company MoneyGram International Inc, which was terminated earlier last month.

Proposed legislation in Congress would broaden the powers of CFIUS in hopes of stopping Chinese efforts to acquire sophisticated U.S. technology. The bipartisan legislation has Trump’s support. (Reporting by Greg Roumeliotis in New York; editing by Diane Craft)

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