Yageo’s $1.8 billion acquisition of KEMET cleared by CFIUS

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KEMET crushes earning expectations in FQ3 2019.
Image: YouTube | KEMET

KEMET announced last week that the Committee on Foreign Investment in the United States (CFIUS) had approved of its acquisition by the Yageo Corporation. The agency reviewed the transaction to determine if the Taiwanese company’s purchase of the American manufacturer posed a threat to national security.

Having cleared that hurdle, the two firms expect to complete their tie-up on schedule in the third quarter.

Why Yageo is Acquiring KEMET

Last November, KEMET and Yageo revealed they came to terms on a takeover deal worth $1.8 billion. The Taipei-centered passive components corporation agreed to purchase the Florida-based capacitor company’s outstanding stock for $27.20, a premium of 26 percent. In a press release, the two corporations presented their merger as ideal for their respective clients and stakeholders.

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For Yageo, the tie-up would bolster its components portfolio with new 5G, automotive, and robotics offerings. The proposed transaction also provided the Taiwanese company with a greater presence in North America, Asia, and Europe. Moreover, the firm could gain a foothold in Japan via KEMET’s Tokin subsidiary.

KEMET would benefit from a Yageo takeover as it would bring its products to new customers in Greater China and Southeast Asia. The prospective merger also gave the American semiconductor corporation larger profit margins, synergistic cost savings, and a broader revenue base.

The American semiconductor maker’s shareholders saw the wisdom of Yageo’s offer and overwhelmingly voted to approve the deal in February. However, the merger could have easily come apart in the regulatory phase.

CFIUS’s Approval Process

In recent years, CFIUS has directed increased scrutiny at transactions that it believes could potentially undermine American national security.

Last June, the German corporation Infineon Technologies declared its intent to buy California’s Cypress Semiconductor for $9.78 billion. However, the transaction, expected to close late last year, only finished in March because of a CFIUS review. The Treasury Department agency reportedly took issue with the European company’s dealings with firms like telecommunications conglomerate Huawei.

Similarly, CFIUS’s objections to Infineon’s $850 million takeover of North Carolina chipmaker Cree’s Wolfspeed subsidiary unraveled that deal in 2017. The Committee’s recommendation against a 2018 merger between Broadcom and Qualcomm unmade a $117 billion transaction.

Having emerged unscathed from a CFIUS review, Yageo’s acquisition of KEMET just needs the okay from Chinese and Taiwanese regulators. Once that happens, the combined firm will be well-positioned to claim a $3 billion portion of the $28 billion to $32 billion passive components market.

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