Prolly Dead: PRC's $23B Bid for US Micron Technology

♠ Posted by Emmanuel in ,, at 9/04/2015 01:30:00 AM
China out! Keeping Micron Technology "safe" from the Reds.
It is no real mystery as to why the Chinese remain keen on buying American technology firms. Having mixed success in product upgrading on their own, they are keen to acquire foreign knowledge--through outright purchase of US firms if necessary. However, the old canard of "national security" keeps being raised by American politicians that Chinese buying US technology concerns would lead to these equipment makers festooning products meant for the American market with all sorts of snooping devices. 

The irony, of course, is that Americans have been observed spying on Asians--including Japanese firms--and not necessarily the other way around. Ah well, to today's story: a few weeks back, state-owned Tsinghua Unigroup--founded by graduates of Tsinghua University like Silicon Valley firms were by Stanford/Berkeley alumni or Cambridge UK firms by alumni from that famed university--gave hints about buying US memory chip giant Micron. Apparently, the Chinese wanted to upgrade their memory chip-making abilities:
State-owned Tsinghua Unigroup is considering an approach for chipmaker Micron in what would be China’s biggest bid for a US company. Unigroup on Tuesday said that a deal was “still under discussion”, but Micron carries an enterprise value — equity plus net debt — of $23bn, making that the likely starting valuation for any offer.
It's illustrative that the largest Chinese purchase of a US firm is of a pork producer--not exactly the heights of technological sophistication. Give US politicians any whiff of a technology or energy bid from the Chinese and it's soon scuttled:
China’s biggest deal was the $7.1bn purchase of pork producer Smithfield by Shuanghui International, which was renamed WH Group.
The apparent interest in Micron comes after China’s efforts to improve its domestic chipmaking industry gained fresh impetus last year with the creation of a Rmb120bn ($20bn) state-backed fund to support deals and improvements in the sector. Ministers at the time said that having a world class domestic industry was strategically important to China’s competitiveness and to its IT security. Chinese chipmaking champions such as SMIC have for years competed with the likes of Taiwan’s TSMC but have failed to establish a reputation for equal quality...

China-backed deals have come unstuck in the past. In 2005, Washington blocked an $18.5bn offer from Cnooc, the state-owned oil major, for US crude group Unocal, on security grounds. Cnooc’s successful $15.2bn bid in 2012 for Canada’s Nexen remains the country’s biggest outbound deal.
Which brings us to more recent news that the bid--never officially declared anyway--looks dead in the water. From Doug Young of Forbes:
I wrote several weeks ago that a bid by China’s Unigroup to buy U.S. memory chip giant Micron Technology had become the victim of politics, and now it appears the deal is finally dead. Or at least it’s on life support, with little hope of resuscitation. That’s my interpretation, following the latest reports that say Unigroup’s chairman has given remarks that look quite pessimistic after returning to China from a last-ditch U.S. visit to try to save the deal.

This deal looked quite interesting when it was first reported back in July, and would have been worth some $23 billion, marking the biggest-ever acquisition of a U.S. company by a Chinese counterpart. But political sensitivities quickly surfaced due to Micron’s status as the biggest U.S. maker of memory chips used in most electronic devices and also in the defense industry.

The situation was further complicated by timing, since the U.S. is preparing for presidential elections next year and China is often an easy target for candidates to attack during that period. As the icing on the cake, Unigroup is also stigmatized by its close association with Tsinghua University, China’s leading science university that has close ties with Beijing and is often used for government-led programs to develop new technologies.

Perhaps the U.S. media have already dismissed this particular deal, since the latest reports were only carried in Chinese and were based on information from a second-hand source familiar with Unigroup Chairman Zhao Weiguo’s recent U.S. trip. Foreign media previously said that Unigroup officials were headed to the U.S. to try to salvage a deal, though this is the first report on the outcome.
My take is simple: Tsinghua Unigroup sent a few executives to float the idea of an acquisition of Micron stateside--especially among US policymakers. With all the "national security" BS rehashed in their faces, they decided the deal had next to no chance of going through. Besides, it would subject the Chinese corporation's leadership to intense scrutiny. So the idea's been canned for now.