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Is a trade war brewing between China and US?

Posted: 06 Aug 2015 ?? ?Print Version ?Bookmark and Share

Keywords:acquisition? M&A? DRAM?

Micron, the last remaining U.S.-based DRAM-maker and the world's third largest, is reportedly in talks for a possible buyout worth $23 billion by Tsinghua Unigroup, a China-based company.

Hit or miss, the reported deal is certain to add bandwidth to growing tensions between the United States and China over semiconductor production. Credit Suisse calls the planned deal evidence of a "brewing trade war." (As of this writing, Micron denies it has received an offer letter, but multiple media outlets state that the deal is being prepped by Tsinghua).

If accurate, volatility in the electronics supply chain is almost sure to result.

A successful Micron deal would be the largest takeover by far of any American company by a China firm, and place a giant DRAM chipmaker in the hands of a Chinese company with close ties to the Chinese government. A spinoff of an elite technical university, Tsinghua Unigroup once employed the son of a former Chinese President in a powerful senior position and is likely to receive state funds to consummate any deal.

Micron

To be sure, most observers here are doubtful; the Wall Street Journal, first to report the plan, cracked that the offer faced a "Great Wall" of scepticism.

Micron stocks

For one thing, the offer price is based on current share levels, Micron stock having plunged over the last couple of quarters. Investors would likely want something reflecting a much more favourable 100-day moving average.

But Credit Suisseand here is where it gets interestingtakes a different angle. Its analysts characterise the deal as "highly unlikely to get past U.S. regulators who are increasingly viewing semiconductors as a strategic industry."

Close scrutiny could come from the feds' Committee on Foreign Investment in the U.S. (CFIUS) a panel of a dozen departments and agencies. If CFIUS tabs a deal as a national security threat, it would almost certainly be blocked.

True, Micron's products do not mainly impact the military supply. However, both countries have been accused of burying back doors in microelectronics sold in the two respective countries. With Micron under Chinese ownership, its DRAMS, NANDs and NOR flash memory in devices and data centres around the world, the spectre of sabotaged chips would become larger still, in Washington's probable view.


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