Chinese Takeover

New Hope for Aixtron

  • Why it matters

    Why it matters

    If regulators approve the sale of all or parts of technology company Aixtron, it would provide fresh capital for the company which is struggling with weak demand.

  • Facts

    Facts

    • U.S. regulators sought to block the sale of technology company Aixtron to FCG but it is unclear whether the entire sale is off or only some parts of the business.
    • Aixtron has 700 employees, is based in Aachen, western Germany, and makes equipment used to make electronic chips.
    • Aixtron has seen its sales decline from a high of €780 million to only €200 million in 2015.
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    Audio

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Will they, won't they - will the Chinese consortium take over Aixtron? Source: Aixtron

Managers at Aixtron are currently experiencing an emotional roller coaster after statements made in the past few days suggested a deal critical to its survival was on again – or off again.

The German engineering company is in the midst of takeover talks that have been complicated by political interventions after a Chinese company bid for the technology company.

Aixtron makes equipment to produce electronic chips. Its machines make semiconductors which have a civil application in the manufacture of LEDs and are also suited for military purposes, for example in systems which guide rockets and satellites.

In May, the Chinese consortium Fujian Grand Chip Investment, or FCG, which is backed by state-controlled funds, made a takeover offer of €670 million ($715 million) for Aixtron.

Regulators from the United States intervened to stop the bid, citing security concerns. In the middle of November the U.S. authority for foreign investment (CFIUS) had recommended blocking the deal for reasons of security, but had passed on the matter to the White House.

According to Aixtron, Mr. Obama’s decision doesn’t block the entire transaction, but only stops a takeover of the mid-sized firm’s U.S. business.

Washington is worried about “risks for the national security of the United States” should this know-how wind up in China and in November, the United States’ authorities intervened, citing concerns that products made with Aixtron machines could be put to military use.

The U.S. has a say in the matter because Aixtron has a branch in California with 100 employees.

On Friday night, U.S. President Barack Obama duly vetoed the takeover – but seemed to have opened up a way to make it possible for to take over Aixtron after all.

According to Aixtron, Mr. Obama’s decision doesn’t block the entire transaction, but only stops a takeover of the mid-sized firm’s U.S. business. In a statement, the company said, the presidential order was limited to Aixtron’s U.S. business and did not per se prohibit the acquisition of Aixtron shares and American depositary shares FGC, Reuters reported.

“The Chinese now have to take another look at the Aixtron deal and see if the offer still works without the U.S. operation,” Marc Tüngler, managing director of the German Protection Association for Security Holdings (DSW) told Handelsblatt. DSW champions the rights of shareholders and is in favor of the sale which would bring much-needed cash to the ailing Aixtron. “Since Saturday I’ve been very optimistic that the sale will go ahead after all,” Mr. Tüngler said.

Since the weekend, FGC and Aixtron have been trying to figure out what the U.S. president’s decision means. Aixtron’s operation in the United States is important for the company.

But over the weekend, industry sources said it could be possible to proceed without the U.S. business. Those involved “would have to see if things can be reorganized accordingly.”

Aixtron makes 20 percent of its revenues directly with the United States and does additional business via its U.S. subsidiary. “But that currently affects only one client from the memory chip industry,” according to sources close to the company.

FCG will now evaluate what the U.S. veto mean and decide whether or not to pursue their takeover plans, perhaps with a modified offer.

In its offer, FGC also included a document listing possible political preconditions and also included a clause stating the investor was prepared to accept a fall in revenues of up to 27.5 percent.

FCG has tried repeatedly tried to take over Aixtron and said that these are normal plans to merge companies with purely commercial motives. The Chinese Foreign Ministry recently warned against “political interference.”

 

Aixtron – Sales Employees Market value

Aixtron too is considering the consequences of the move by the U.S. and at the weekend announced its intention to find out from the Financial Supervisory Authority, known here as Bafin, whether the offer with the new precondition by the U.S. government is still in the interest of shareholders.

Mr. Tüngler was optimistic. “The game isn’t over yet,” he said. “The ball is now back in Germany’s court.” Now, above all, it is up to the economics ministry. Because even if the Chinese still want to buy, and the financial regulator approves, Bafin, it’s ultimately the government which will decide whether FGC can take over Aixtron.

Vice Chancellor Sigmar Gabriel had already withdrawn its previous approval for the sale of Aixtron to the Chinese consortium in October and initiated a new inspection of the sale. This brought an accusation from DSW, the shareholders’ association, that the ministry was protecting the economic interests of the United States.

If FGC does take over Aixtron, it would gain technology that American companies are currently providing to businesses in China.

DSW has said that it would sue Mr. Gabriel for damages if the takeover falls through.

At the weekend, an economics ministry spokesperson said a fresh review of the deal was underway but would take some time.

Mr. Gabriel had announced in the face of an increasing number of takeovers of German companies by Chinese investors that he wanted better protection for key domestic technologies. Several other Chinese takeovers this year have caused concern in Berlin about the potential loss of expertise, including Midea’s purchase of Kuka, which makes robotics, and other investors’ attempt to buy Osram.

Time is running out for Aixtron, which is in debt and due to a weak order book has long been in crisis mode.

The company has long hoped for stronger demand from China, a key market. But without this, and if the FCG deal falls through, Aixtron will have to change its strategy, divest itself of some technology divisions or look for new cooperation partners. If it comes to this, the company’s chief executive Martin Goetzeler has already given advance notice of steep cuts and job losses.

 

Martin Wocher writes about the mechanical engineering and steel industries. To contact the author: wocher@handelsblatt.com

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