| WASHINGTON/SAN FRANCISCO
WASHINGTON/SAN FRANCISCO A Chinese state-backed company's plan to buy U.S. chip maker Micron Technology (MU.O) faces no shortage of obstacles - questions about the price, worries on Capitol Hill, an aggressive regulator - and any one of them could torpedo the deal.
Analysts argued Tsinghua Unigroup Ltd's proposed price, $23 billion, was far too low. But China's critics on Capitol Hill worried about the impact on the Defense Department. And any deal would likely face a close look by the agency charged with vetting transactions that have potential national security concerns.
"If people decide that if what Micron makes isn't important any more (it will be approved)," said Jim Lewis of the think tank Center for Strategic and International Studies. "But I think that Tsinghua will have to get over a whole lot of hurdles and it won't be easy."
Tsinghua, which sources said was preparing a bid for Micron but had not officially submitted it, has been at the forefront of China's efforts to expand its chip industry.
The company bought Chinese mobile chipmakers Spreadtrum and RDA Electronics in the last two years. Last year, Intel Corp (INTC.O) bought into Tsinghua with a $1.5 billion investment.
Buying Micron would give China access to both DRAM and NAND memory chips, which are used in personal computers and to store music, pictures and other data on smartphones and mobile devices.
But analysts said the $23 billion planned offer price far undervalues the plants, employees and intellectual property of Micron, whose stock has recently taken a hit due to slow demand for personal computers.
"We think the price was only floated through the media because they were too embarrassed to bring it to Micron's board," said Stifel analyst Kevin Cassidy.
J.P. Morgan analysts said a $27 to $29 per share offer would be more realistic, while Needham analysts said the company was unlikely to sell itself for less than $35 per share, implying a deal value of about $38 billion.
SENSITIVE SECTOR, TECH
Micron's potential sale to Tsinghua triggered concerns among U.S. lawmakers given modern weapons' enormous dependence on computer chips. The possible deal also comes amid concerns over cyber attacks tied to Chinese hackers.
"This is a sensitive sector and a sensitive technology, and there will be a lot of congressional interest in conducting oversight," said one Senate aide, who was not authorized to speak publicly.
Analysts were split on whether the deal could be approved.
"This seems highly unlikely, just given the technology that's involved. This is a massive deal, really important technology and quite frankly, it's the Chinese," said Reed Smith partner Leigh Hansson, who leads the firm's International Trade & National Security practice.
The Pentagon had no immediate comment on the potential sale of Micron, or how prevalent the company’s chips were in U.S. weapons systems. Micron Technology did not respond to questions about use of its chips in defense systems.
A central national security concern is that a Chinese version of a Micron chip could have a "back door," which allows it to be more easily compromised.
"If you have access to these chips, what mischief could you do?" asked Paul Marquardt of Cleary Gottlieb, who is an expert on the Committee on Foreign Investment in the United States, or CFIUS.
CFIUS, an inter-agency which reviews mergers to ensure they do not compromise national security, required Chinese networking company Huawei Technologies Co [HWT.UL] to divest 3Leaf Systems in 2011 and blocked its purchase of 3Com Corp stock in 2008 because of concerns about links between Huawei's founder and China's military.
But CFIUS does approve some tech deals. In 2014, China's Lenovo Group (0992.HK) won CFIUS approval to buy IBM's (IBM.N) low-end server business.
Two other experts with CFIUS experience said they would not write off the deal as dead. CFIUS, they said, would assess Tsinghua's ties to the government and Micron's role in national security to decide if the task force, which is led by the Treasury Department, would allow it to go forward.
The company's apparent close ties to the government could be a negative. It behaves as a private equity fund but is controlled by Tsinghua University in Beijing, which counts President Xi Jinping among its alumni, and is backed by China's central government.
The Pentagon may opt to order its supplier to refrain from using Micron chips, said Marquardt.
Micron competes intensely with Samsung, SK Hynix, and Toshiba selling memory chips, and there is very little that it sells that its competitors do not.
(Additional reporting by Devika Krishna Kumar; Editing by Stephen R. Trousdale and Bernard Orr)