President Trump Issues Order Prohibiting Chinese Company Acquisition Of U.S. Semiconductor Business

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On September 13, 2017, President Trump issued an Executive Order prohibiting the acquisition of U.S. company Lattice Semiconductor Corporation (Lattice) by a group of companies, including Canyon Bridge Fund I, LP (CBFI); CBFI’s subsidiaries, CBFI’s limited partner, Yitai Capital Limited (Yitai); and Yitai’s parent company, China Venture Capital Fund Corporation Limited. President Trump took this action pursuant to legislation that allows the President “to suspend or prohibit certain acquisitions of U.S. businesses by foreign persons where he finds that there is credible evidence that the foreign interest exercising control might take action that threatens to impair national security,” provided other areas of law are insufficient.

The Executive Order follows a recommendation from the Committee on Foreign Investment in the United States (CFIUS), which is organized under the U.S. Department of the Treasury (Treasury). According to Treasury, “CFIUS and the President assess that the [Lattice] transaction poses a risk to the national security of the United States that cannot be resolved through mitigation.” This risk “relates to, among other things, the potential transfer of intellectual property to the foreign acquirer, the Chinese government’s role in supporting this transaction, the importance of semiconductor supply chain integrity to the U.S. government, and the use of Lattice products by the U.S. government.”

After issuance of the Executive Order, Lattice announced the termination of the acquisition, with CEO Darin G. Billerbeck thanking Canyon Bridge and stating that “[w]e. . . believe our CFIUS mitigation proposal was the single most comprehensive mitigation proposal ever proposed for a foreign transaction in the semiconductor industry and would have maximized United States national security protection while still enabling Lattice to accept Canyon Bridge’s investment and double American jobs.”

This development comes amidst talks of CFIUS reform. Senator John Cornyn (R-TX), for instance, plans to introduce legislation that would “modernize” CFIUS. This bipartisan legislation would “ensure that we focus on nations that are the biggest threats” and would “give CFIUS more authority to look at investment deals that, as of today, don’t fall under its purview, such as joint ventures based overseas and minority position investments in companies[.]” Senator Cornyn has indicated that this bill will be introduced soon.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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