Fairchild turns down Chinese group’s acquisition offer

Fairchild Semiconductor has turned down an acquisition offer by a Chinese investment group, fearing the deal would be tied up in a lengthy national security review.

The deal shows how mounting concerns in Washington may be starting to derail what has been a steady train of Chinese acquisitions of U.S. tech companies, a number of them in Silicon Valley.

Another deal awaiting approval by a key government review board is the acquisition of a 15 percent share of Western Digital by the Chinese state-backed Tsinghua Holdings in September. In October, Western Digital announced the $19 billion acquisition of Milpitas flash memory chip maker SanDisk.

Fairchild’s board announced Tuesday it had determined that the Chinese group’s offer of $22 a share was not superior to a $20 a share offer from ON Semiconductor of Phoenix, Ariz.

That was a big reversal from the Fairchild board’s announcement Jan. 5 that a $21.70 offer from China Resources Microelectronics and Hua Capital Management “would reasonably be expected to result in a Superior Proposal” under the terms of its merger plan with ON.

What happened?

In a filing with the SEC, the iconic Silicon Valley company said its board continued discussing the Chinese group’s offer during the first week of February, expressing concern about the deal not receiving approval from the Committee on Foreign Investment in the U.S. CFIUS has been taking a closer look at Chinese acquisitions in U.S. high tech, as the number of deals multiply, drawing concern in Congress.

The Chinese consortium promised to pay the company $108 million if the deal failed to clear the bar with CFIUS and as much as $200 million under certain circumstances.

Five days ago, the consortium upped its offer to $22 a share, but balked at increasing its $108 reverse termination fee or increasing its offer any more.

But at the end of the day, the Fairchild board decided the extra money wasn’t worth the regulatory headaches.

While the additional $2 a share “taken by itself” was “very attractive,” the board decided that even though it believed the deal could obtain CFIUS approval, there remained a “non-negotiable risk of a failure” to gain approval for the deal.

At best, the deal might require an extra four to eight months to consummate, compared to the ON acquisition, Fairchild’s board decided.

Photo: Fairchild logo (Mercury News archives)


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