Obama to block Chinese takeover of German company on national security grounds, sources say

By AARON KIRCHFELD AND DAVID MCLAUGHLIN | Bloomberg News | Published: December 1, 2016

LONDON — U.S. President Barack Obama is poised to block a Chinese company from buying Germany’s Aixtron SE, people familiar with the matter said, which would mark only the third time in more than a quarter century that the White House has rejected an investment by an overseas buyer as a national security risk.

The president is expected Friday to uphold a recommendation by the Committee on Foreign Investment in the U.S. that the sale of the semiconductor-equipment supplier to China’s Grand Chip Investment GmbH should be stopped, according to the people who asked not to be identified as the details aren’t public.

Blocking the $714 million acquisition would mark the second time Obama has rejected a deal on national security grounds. The first was in 2012 when he stopped Chinese-owned Ralls Corp. from developing a wind farm near a Navy base in Oregon. Before that, in 1990 then-President George H.W. Bush stopped a Chinese acquisition of MAMCO Manufacturing Inc., an aircraft-parts maker.

The Committee on Foreign Investment in the U.S., or CFIUS, reviews purchases of U.S. companies by foreign buyers and pays particular attention to purchases of technology, especially when it has defense applications. It has a say in the Aixtron deal because the company has a subsidiary in California and employs about 100 people in the U.S., where it generates about 20 percent of its sales.

Aixtron technology can be used to produce light-emitting diodes, lasers, transistors, solar cells, among other products, and can have military applications in satellite communications and radar. Northrop Grumman Corp., a major U.S. defense contractor, is among its customers, according to a Bloomberg supply chain analysis.

The decision comes at a crucial moment for U.S.-China relations. President-elect Donald Trump has accused China of carrying out unfair trade practices that hurt U.S. workers. He has vowed to brand the country a currency manipulator and said he would impose tariffs on Chinese goods. Meanwhile, Chinese companies are investing more in the U.S. than ever. Chinese foreign direct investment in America reached a record $15.3 billion in 2015, according to Rhodium Group.

Notable investments by Chinese companies include the purchase of Smithfield Foods Inc. by WH Group Ltd. in 2013 and China National Chemical Corp.’s bid for Syngenta AG, which CFIUS cleared in August. Dalian Wanda Group Co. is expanding in Hollywood with its purchases of film producer Legendary Entertainment LLC and the second-biggest U.S. cinema operator, AMC Entertainment Holdings Inc.

CFIUS doesn’t comment on its reviews because they’re confidential. National Security Council spokeswoman Emily Home declined to comment, as did an Aixtron representative. Grand Chip didn’t immediately respond to emailed requests for comment, while the China phone number listed on its regulatory filings was disconnected.

Chinese investment in the U.S. has drawn growing concern from Capitol Hill. Lawmakers pushed the Government Accountability Office to review whether CFIUS’s scope should be expanded. Sen. Chuck Schumer, a Democrat from New York, also wrote to Treasury Secretary Jacob Lew saying that he’s concerned about the growing number of acquisitions of U.S. companies by Chinese state-owned buyers.

Schumer promised Congress would work on legislation to expand CFIUS’s oversight.

The U.S.-China Economic and Security Review Commission said last month in a report to Congress that CFIUS should be authorized to stop Chinese state-owned enterprises from acquiring U.S. companies, saying Beijing uses the firms as "a tool to pursue social, industrial and foreign policy objectives."

CFIUS determined Aixtron’s sale to Grand Chip Investment, announced in May, raised unresolved national security concerns and should be abandoned, Aixtron said Nov. 18. Aixtron and Grand Chip rejected that position and planned to continue negotiations with the government, according to the statement. By law, the U.S. president has 15 days to decide on a CFIUS matter after the panel completes its investigation and must issue an executive order to block a deal. CFIUS rulings are rarely referred to the president for a decision before being resolved in some other way.

When a deal raises security risks, the companies can try to negotiate conditions to resolve government concerns, such as a requirement that only U.S. citizens handle certain products and services. When CFIUS concerns can’t be resolved the sale is often abandoned rather than going to the president for a formal rejection.

With assistance from Ben Scent, David Ramli and Justin Sink. Kirchfeld reported from London and McLaughlin from Washington.

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