President Trump issued an Executive Order prohibiting the proposed acquisition of Lattice Semiconductor (Lattice) by a Chinese consortium known as Canyon Bridge. Lattice is a semiconductor company primarily manufacturing programmable logic devices. The Executive Order prohibits the proposed acquisition and any substantially equivalent transaction, and requires the parties to permanently abandon the proposed transaction in 30 days. The Executive Order follows a lengthy review process with the Committee on Foreign Investment in the United States (CFIUS). This is only the fourth time since the enactment of the Exon-Florio Amendment in 1988 that a transaction has been formally blocked.
The parties originally announced the proposed acquisition of Lattice for $1.3 billion in November 2016. Based on publicly available information, the parties voluntarily filed with CFIUS, an inter-agency committee with authority to review transactions by foreign persons of U.S. businesses for their impact on national security. Once CFIUS filings are accepted, the Committee has an initial 30-day period to review the transaction, after which time the Committee may elect to proceed into a 45-day investigation period. If unresolved national security concerns remain following this cumulative 75-day period, CFIUS may send a report to the President requesting a decision with respect to the transaction. Oftentimes, parties voluntarily withdraw and re-file their application in order to continue negotiations with CFIUS. In this case, the parties withdrew and refiled their application on two separate occasions. Following the most recent review and investigation, the parties indicated they would not withdraw their filing and the case proceeded into the presidential review phase.
In prohibiting the transaction, the U.S. Government cited to several national security risks including:
- The potential transfer of intellectual property to the foreign acquirer,
- The Chinese government’s role in supporting this transaction,
- The importance of semiconductor supply chain integrity to the U.S. government, and
- The use of Lattice products by the U.S. government.
Congress also expressed similar concerns regarding the transaction. In December 2016, 22 members of Congress signed a letter to CFIUS requesting the Committee block the transaction, stating that purchase of a U.S. field programmable gate array (FPGA) designer could disrupt the U.S. military supply chain and possibly lead to reliance on foreign-sourced technologies for critical Department of Defense programs. The members of Congress further explain that while the direct acquirer is a U.S. company, the entity is affiliated with the government of China and was a “legal construction intended to obfuscate the involvement of numerous PRC state-owned enterprises during the [CFIUS] review process.” It is unclear whether Lattice currently holds any U.S. Government contracts and/or whether it may directly or indirectly provide products to the U.S. Government though when the deal was announced, a senior official from Lattice noted that the company had “stopped designing products for the military several years ago and that legacy military work was less than 3 percent of the company’s current revenue.” In terms of the foreign acquirer, public information suggests many of the limited partners involved in the consortium are from the China Reform Fund, which is ultimately owned by the PRC central government.
This recent action comes as the Senate Banking, Housing and Urban Affairs Committee is set to hold a hearing on the morning of September 14th examining the role of CFIUS.