January 29, 2022

US blocks takeover of semiconductor company by Chinese investment fund

Probably yet another episode in the trade war between the United States and China. A Korean semiconductor company, Magnachip, revealed on December 13 that it was renouncing its takeover by Wise Road Capital, a Chinese investment fund specializing in the sector.

In a grip between China and the United States

China may achieve spectacular results in the development of new technologies, around 5G, artificial intelligence or quantum computing, there is one sector where its backwardness is problematic: semiconductors.

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The country has factories on its territory, concepts and intellectual property still largely elude it. Despite its efforts to support its local champion, the Semiconductor Manufacturing International Corporation (SMIC), the Middle Kingdom’s backwardness remains glaring.

The United States, in the midst of commercial and diplomatic tension with China, has clearly identified this weak point. A fragility increased tenfold by the shortage of semiconductors affecting the whole world and expected to last until 2023.

This partly explains the refusal of the Committee on Foreign Investments in the United States (CFIUS) to validate the operation under the pretext of ” national security risks “. The country is stepping up measures on the semiconductor sector. They are regularly unfavorable or embarrassing for Beijing.

The acquisition of Magnachip does not pass

On the Magnachip affair, in August, the Treasury Department took a stand against the operation, reports Reuters. In June, the CFIUS ordered the suspension of the Magnachip buyout procedure by the Wise Road Capital fund. In a joint commentary, the two companies explain that the decision taken “ results from the inability of the parties, despite months of effort, to obtain CFIUS approval for the merger ».

If everything had gone as planned under an agreement concluded in March 2021, Magnachip would have been bought for $ 1.4 billion with formalization in the second half of 2021. Magnachip and Wise Road Capital, in the absence of authorization from the government, have renounced, including in front of the Korean authorities. Little consolation, Magnachip must receive compensation of $ 70.2 million as a result of this decision. The trade war between China and the United States continues quietly.