Fairchild Semiconductor International Inc FCS.O said on Tuesday it had rejected an acquisition offer from China Resources Microelectronics Ltd and Hua Capital Management Co Ltd, citing concerns over the U.S. approval process.
The move underscores the challenges Chinese companies and investors face in seeking to acquire U.S. chipmakers, particularly when it interferes an existing deals. Fairchild had agreed to sell itself in November to U.S. peer ON Semiconductor (ON.O) for $2.4 billion.
In a filing with the U.S. Securities and Exchange Commission, Fairchild said there was an "unacceptable level of risk" that the deal with the Chinese would be rejected by the U.S. Committee on Foreign Investment in the United States (CFIUS), an inter-agency panel led by the Treasury Department which assesses potential mergers to ensure they do not endanger national security.
China Resources Microelectronics and Hua Capital had offered $2.46 billion for Fairchild in December. Fairchild said that the Chinese offer did not compensate them for the CFIUS risk.
"Specifically, the board believed that the consortium’s proposed $108 million CFIUS reverse termination fee would not adequately justify risking the company stockholder premium present in the ON Semiconductor transaction," Fairchild said in its filing.
Fairchild's board is open to another offer by the Chinese, according to a person familiar with the matter who requested anonymity to discuss confidential deliberations.
Fairchild's decision follows Philips' scrapping of a plan to sell its Lumileds lighting division to Chinese buyers because of opposition from CFIUS in January.
Some lawyers who specialize in CFIUS transactions have advised clients that Chinese investments in U.S. high tech companies will have difficulty winning approval from the notoriously opaque CFIUS, unless the Chinese buyer is truly private, said Jim Lewis of the Center for Strategic and International Studies who follows CFIUS.
"Any company reading the tea leaves will see that it's going to be a bumpy ride getting CFIUS approval for a Chinese investment in the semiconductor industry," he said. In particular, the Defense Department and Department of Homeland Security worry about supply chain security, he said.
U.S. touchscreen chip maker Synaptics Inc (SYNA.O) is currently in talks with a Chinese group of investors about being acquired.
(Reporting by Diane Bartz in Washington, Liana B. Baker in Montreal and Anya George Tharakan in Bengaluru; Editing by Alan Crosby)