October 25, 2016 / 10:10 AM / in 3 years

China's FGC stands by Aixtron deal in face of German review

FRANKFURT (Reuters) - The Chinese company bidding for chip equipment maker Aixtron (AIXGn.DE) may push ahead with its takeover plans even after Germany has withdrawn its approval because of security issues.

The headquarters of German chip equipment maker Aixtron SE is pictured through a security fence in Herzogenrath near the western German city of Aachen, October 25, 2016. REUTERS/Wolfgang Rattay

Fujian Grand Chip Investment Fund LP (FGC), which is trying to buy Aixtron in a 670 million euro ($727.75 million) deal, said on Tuesday the German government’s move did not necessarily mean it would drop its bid but it was looking at the legal implications.

The German Economy Ministry’s plans to review the deal adds to growing protectionist rhetoric in Germany, where Chinese companies have been stepping up their spending.

Chinese investors have racked up deals worth more than $10 billion in Germany so far this year, about 40 times as much as in 2015 as a whole, according to Thomson Reuters data.

One of the biggest single transactions was the 4.5 billion-euro takeover of German industrial robot maker Kuka (KU2G.DE) by Chinese household appliance maker Midea (000333.SZ).

Berlin initially sought to limit Midea’s stake to restrict the Chinese company’s influence on Kuka, which was considered a national champion.

“The German government clearly has a motive here. It wants to keep all that technology in Germany with good reason. They’ve already given too much away. It’s German companies, it’s German technology, it’s German jobs, it’s German capital,” David Vos, capital goods analyst at Barclays, said.

Economy Minister Gabriel has also called for a Europe-wide safeguard clause which could stop foreign takeovers of companies with technology deemed strategic for the future economic success of the region. He is due to lead a business delegation to China next week.

Daniel Domberger, partner at UK-based mergers and acquisitions advisory firm Livingstone, said the German government was over reacting and creating regulatory uncertainty.

“The Eurozone needs to be stimulating growth, not deterring investment. But we will see more stories like this, even though Chinese acquisitions count for a tiny proportion of the deals done in Germany,” he wrote in an email.

Others have also put China’s offshore ambitions under the spotlight this year, with the European Commission raising doubts on Monday about Chinese chemical company ChemChina’s [CNNCC.UL] Switzerland’s Syngenta SYNN.S.

According to FGC, Germany had cited technology that was relevant to security, especially to the defense sector, being revealed by a takeover of Aixtron as the reason for its scrutiny.

Aixtron makes machines used in the production of red, blue, green and white light emitting diodes (LEDs) as well as chips for memory, power management and nanotechnology. Its products are not directly designed for the defense sector.

FGC is partly state-backed, but businessman Zhendong Liu, who owns 51 percent of the company, told Spiegel Online this month that the Chinese government played no role in his decision to invest in Aixtron.

The logo of Aixtron SE is pictured on the roof of the German chip equipment maker's headquarters in Herzogenrath near the western German city of Aachen, October 25, 2016. REUTERS/Wolfgang Rattay

The Chinese foreign ministry meanwhile said it was encouraging its companies to invest overseas.

“At the same time, we hope relevant countries can provide a fair environment and convenient conditions for investment by Chinese companies, which accords with both sides’ interests,” Chinese foreign ministry spokesman Lu Kang said in Beijing.

($1 = 0.9206 euros)

Additional reporting by Ben Blanchard, Georgina Prodhan and Caroline Copley; Editing by Alexander Smith and Jane Merriman

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