It looked like a done deal. The German chip manufacturer Infineon wanted to take over U.S. semiconductor specialist Wolfspeed, which makes chips used in charging technology for electric cars. Reinhard Ploss, chief executive of Infineon, said last week that the plans were on track and that he expected to get the green light from the authorities this quarter.
But Mr. Ploss was wrong. The Committee on Foreign Investment in the United States, or CFIUS, a government body that reviews plans for foreign investment to determine whether there are any risks to national security, has unexpectedly opposed the deal. Infineon announced on Wednesday night that the committee had informed the companies that the planned purchase constituted a risk to national security. Inside sources later said that the chances of the deal going ahead were slim.
Infineon, a former subsidiary of German technologies giant Siemens, had planned to pay $850 million for its competitor, which is currently owned by the U.S. LED manufacturer Cree. When the Munich-based group announced the deal in summer 2016, it said that the two companies would complement each other. They both produce semiconductor devices, which are used in the supply of electricity.
Mr. Ploss had no reason to doubt that he would obtain approval. Infineon acquired the California-based company International Rectifier for $3 billion two years ago without any problems. Acquisitions are important to Infineon, as the industry is going through a frenzied wave of takeovers. "We have always said we want to play an active role in consolidation in the sector," Mr. Ploss has often said.
The U.S. military has a strong interest in technology that uses gallium nitride, which is regarded as an important semiconductor material for the power electronics of the future.
However, U.S. President Donald Trump and his government have the right to veto every transaction. The CFIUS investigates each deal to establish whether it will impact U.S. security or violate the country's security interests. This does not apply in most cases. In 2016, the committee approved the takeover of seed producer Syngenta by Chinese state-owned group Chemchina for $43 billion without any significant objections. However, there is one issue in which the CFIUS has repeatedly intervened in recent years: semiconductors. That is what is happening now with Infineon and Wolfspeed.
The U.S. military has a strong interest in technology that uses gallium nitride, which is regarded as an important semiconductor material for the power electronics of the future. It is still expensive to produce, and advances in gallium nitride technology are often made thanks to government financing and research. Military applications include electronic broadband radio systems and broadband radar technology, as well as military intelligence.
Gallium nitride was also the problem for Dutch electronics group Philips, which wanted to sell its LED lighting division, Lumileds, to Chinese investor GO Scale Capital in 2016. A purchase price of $2.8 billion was agreed for an 80 percent stake in the Lumileds business. This would have been a good result for Philips chief executive Frans van Houten, who wants to focus on business with medical devices.
But Mr. van Houten had not counted on the Americans. Early this year Philips announced that CFIUS had blocked the deal, "despite intensive efforts by Philips and GO Scale Capital to allay its concerns." The U.S. committee had a say in the deal because Lumileds is based in California. The company develops LED lighting and uses semiconductors based on gallium nitride. The head of Philips said at the time that he was "frustrated."
Frustration is now also the prevailing mood at Infineon. The company had hoped to secure technical expertise through the takeover of Wolfspeed. The U.S. rival employs around 500 staff and would have contributed €200 million ($213 million) to sales. Off the record, sources have said that the veto came completely out of the blue and that attempts are being made to rescue the deal. Infineon's most important ally is reported to be Cree, as the U.S. company still wants to sell the division.
Harald Schnitzer at DZ Bank said in an analysis on Thursday that the addition of Wolfspeed would have allowed Infineon to strengthen its position as the leading supplier of power semiconductor devices and high-frequency power components for growth markets such as electromobility, renewable energies and the next generation of mobile communications infrastructure. Investors were also disappointed: Infineon was one of the biggest losers on Germany's DAX index on Thursday, with a drop of almost 3 percent.
The refusal of the U.S. authority to approve the deal has raised the question of what will happen with other trans-Atlantic takeovers in the chip industry. The U.S. semiconductor manufacturer Qualcomm is planning to acquire Dutch provider NXP for $47 billion. Industry sources expect the relevant authorities in Europe to reassess this deal in the light of recent events.