Last June, The Burn-In reported German company Infineon Technologies declared its intent to buy California-based Cypress Semiconductor for $8.7 billion. However, the Committee on Foreign Investment in the United States (CFIUS) blocked the deal by initiating a national security review. Last week, the agency cleared the transaction, and now details have emerged regarding why CFIUS gave its approval.
Why U.S. Regulators Cleared Infineon-Cypress Deal
Years ago, the White House directed CFIUS to place more scrutiny on corporate acquisitions involving China. While Infineon is based in Neubiberg, the corporation derives one-third of its revenue from China. Indeed, Sino telecommunications giant Huawei is reportedly responsible for 2.4 percent of its sales.
Although Cypress’ components are primarily used in consumer products, the firm makes ruggedized memory chips used for defense sector applications.
According to Bloomberg, Infineon made unspecified “national security concessions” to gain CFIUS’s go-head to buy Cypress. The site notes the German firm could have conceded to let the U.S. government review some of its decision-making. The company might have agreed to wall off Cypress from its Chinese business or conduct specific tasks within the U.S.
The Motley Fool notes Infineon might have argued other companies offer the same kind of components Cypress offers.
Notably, Infineon walked away with a better outcome than the last time it dealt with CFIUS. In 2016, the German company announced plans to buy North Carolina semiconductor maker Cree’s Wolfspeed segment for $850 million. The two firms called off the deal in February 2017 because they couldn’t assuage Washington’s national security concerns.
Smooth Sailing From Here
Having now gained regulatory approval from the U.S. government, Infineon’s purchase of Cypress should proceed smoothly from now on.
Last October, the European Union’s regulator, the European Commission, authorized the international transaction. The organization noted the two firms had little market overlap, so the deal didn’t merit an anti-competition investigation.
The Motley Fool argues the Infineon-Cypress merger is unlikely to raise any objections from Chinese regulators. The publication notes Sino officials have previously blocked U.S. corporations from purchasing companies that fell under their purview. For instance, Beijing’s State Administration for Market Regulation prevented Qualcomm from acquiring NXP Semiconductors in 2018. But the organization reportedly places less scrutiny on deals going the other way.
Last summer, market analysts regarded Infineon’s acquisition announcement with some trepidation. Citi Bank said it was unwise of the German corporation to spend so much money in the midst of the Sino-American trade war. However, as The Burn-In reported last October, the automotive component maker grew its revenue despite the conflict.
With the trade war and its recent regulatory issues resolved, Infineon should have no problem becoming one of the world’s largest semiconductor makers.