According to a press release issued on November 21, 2016, the Committee on Foreign Investments in the United States (CFIUS) refused to approve the proposed $710 million acquisition of technology company Aixtron GE of Germany by Grand Chip Investment GmbH, a German subsidiary of Fujian Grand Chip Investment Fund LP of China, citing unresolved national security concerns that cannot be remedied through mitigation. Aixtron and Grand Chip have announced CFIUS informed the parties that unless the transaction is voluntarily abandoned, CFIUS will refer the transaction to the President of the United States, who will have 15 calendar days to either approve or block the transaction under Section 721 of the Defense Production Act, as amended by The Foreign Investment and National Security Act of 2007, which we refer to as “FINSA.” While Aixtron GE and Grand Chip Investment GmbH have publicly stated that they intend to continue to actively engage in further discussions with CFIUS in an attempt to resolve any U.S. national security concerns, there is no guarantee that either CFIUS will agree to satisfactory mitigation or that the President will ultimately approve the transaction. Ultimately, FINSA gives the President the authority "to suspend or prohibit any covered transaction that threatens to impair the national security of the United States."
Whatever the result of the President’s review, this is a renewed reminder of the extraordinary reach of CFIUS's jurisdiction as it applies to transactions involving parties and entities outside the United States. A transaction "covered" by CFIUS review includes "any merger, acquisition, or takeover . . . by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States." The entity to be acquired in this case, Aixtron, has its headquarters and principle facilities in Germany, with offices around the world. Aixtron has an office in Sunnyvale, California with 156 reported employees where, in addition to handling sales and distribution, engineers work on the company's semiconductor deposition technology. That office in Sunnyvale, and whatever sales Aixtron makes into the US and with US entities, is the basis of CFIUS’s jurisdiction over the transaction. The CFIUS decision here underscores that U.S. entities with semiconductor technology are considered a part of critical infrastructure.
CFIUS has a long history of exercising its jurisdiction over the sales of foreign entities that affect U.S. interstate commerce. Recently, CFIUS is known to have reviewed the merger of Finnish company Nokia Corp. with French company Alcatel-Lucent SA and the takeover of Swiss headquartered Syngenta SA by Chinese company ChemChina.
So do not assume that CFIUS can play no role in a transaction between foreign parties. To the contrary, if CFIUS believes the transaction may impact U.S. national security, and the company to be acquired has a facility in the U.S. or otherwise affects U.S. interstate commerce, we advise parties to continue to consider national security concerns, including CFIUS review, as early as possible in planning the transaction.
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