Keywords: Aixtron, acquisition, patents, CFIUS, German
On 2 December 2016, President Obama issued an administrative order to prohibit the proposed acquisition of a controlling interest in Aixtron SE (Aixtron) by Grand Chip Investment GmbH (GCI), a German company partially owned by Fuijan Grand Chip Investment Fund LP, a Chinese partnership with some Chinese government ownership. It was only the third time in history that a US president has formally blocked a proposed foreign acquisition of a US business due to national security concerns identified during the review process by the Committee on Foreign Investment in the United States (CFIUS).
Aixtron is a German semiconductor equipment maker; its US business (Aixtron US) accounts for about 20 percent of the company's workforce and a similar percentage of the company's global sales in 2015. The €670 million (approximately US$720 million) transaction was to have been financed by Sino IC Leasing Co. Ltd., which belongs to the Chinese government-established and -supported China IC Industry Investment Fund.
Though CFIUS's national security reviews are not public, it appears that the CFIUS concerns centered around Aixtron's work to manufacture equipment for Metal-Organic Chemical Vapor Deposition (MOCVD) systems. These systems are used to produce the multilayer crystalline films necessary for semiconductor production. The US Treasury Department (Treasury), acting in its capacity as the chair of CFIUS, said in its statement regarding the decision that "[t]he national security risk posed by the transaction relates, among other things, to the military applications of the overall technical body of knowledge and experience of Aixtron [...] and the contribution of Aixtron's U.S. business to that body of knowledge and experience."
When faced with concerns from CFIUS, most parties to a transaction under review seek to mitigate those concerns under agreements with CFIUS or choose to abandon or restructure the transaction. That was not the case here; apparently CFIUS did not believe that its concerns could be mitigated, and the parties were unwilling to abandon or unable to restructure the transaction. Consequently, the transaction was referred by CFIUS to the president, who blocked the transaction, stating, "The proposed acquisition of Aixtron US by the Purchasers is hereby prohibited, and any substantially equivalent transaction, whether effected directly or indirectly through the Purchasers' shareholders, partners, subsidiaries, or affiliates is prohibited." The administrative order defined the US business broadly, including any Aixtron US assets such as patents and patent applications.
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Originally published on December 14, 2016Visit us at mayerbrown.com
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