Bloomberg: Lattice Semiconductor considers seeking help from Trump to sell itself to Chinese capital

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Bloomberg reported on the 30th Beijing time that according to a person familiar with the matter, Lattice Semiconductor is considering seeking approval from US President Donald Trump for a Chinese-backed private equity firm to acquire it. Previously, a national security committee had repeatedly rejected the acquisition.

Asking Trump for help is one of several options being considered by both parties in the $1.3 billion acquisition, including extending the time frame for talks with the panel or canceling the deal, the people said, asking not to be identified because a final decision has not been made. Asking the president to review a deal for a foreign buyer to acquire a U.S. company, rather than terminating the agreement, is almost unheard of.

Lattice Chief Executive Darin Billerbeck was in Washington this week making a last-ditch effort to convince government officials as the panel’s review of the deal was due, according to another person familiar with the matter. Lattice and the buyer, Canyon Bridge Capital Partners, came up with a solution to address the U.S. government’s concerns, the person said.

The Committee on Foreign Investment in the United States (CFIUS) is nearing the end of its third 75-day review of the acquisition agreement reached by Lattice and Canyon Bridge in November last year. The committee is led by the Treasury Department and includes officials from the Commerce, State and Defense departments to review possible national security risks of foreign buyers acquiring U.S. companies.

Lattice and Canyon Bridge declined to comment. CFIUS does not comment on its reviews, which are confidential.

Canyon Bridge is a private equity firm registered in Silicon Valley, but the money behind the deal comes from China. CFIUS has always taken a tough stance on China's acquisition of semiconductor technology and development of the domestic chip industry.

According to Reuters, sources familiar with the matter said on Tuesday that China-backed private equity fund Canyon Bridge Capital Partners will decide this week whether to seek approval from U.S. President Trump for its $1.3 billion acquisition of U.S. chipmaker Lattice Semiconductor.

Canyon Bridge has spent nearly eight months trying unsuccessfully to convince the U.S. Committee on Foreign Investment in the United States (CFIUS), which approves deals that could threaten national security, to approve the acquisition.

The U.S. president has ultimate authority to suspend or block such investments.

If the parties decide to seek presidential approval, it would be the first time Trump has handled such a merger and only the fourth CFIUS case to be sent to the White House in the past 30 years. The president has supported CFIUS in blocking three previous problematic deals.

CFIUS's latest 75-day review of the Lattice Semiconductor acquisition will end this weekend; the acquirer has submitted the transaction to CFIUS for approval for the third time since the announcement in November last year. Sources said that the two parties have decided not to seek CFIUS approval and may instead submit it to Trump for approval as regulatory rules allow.

Canyon Bridge did not comment on the news, but according to the Wall Street Journal, in July this year, partners of Canyon Bridge Capital Partners Inc. said that the company was considering acquiring Lattice Semiconductor (LSCC) in Portland, Oregon for purely commercial purposes, and that the company had tried to eliminate the concerns of the Committee on Foreign Investment in the United States (CFIUS) on national security. Despite this, nine months after Canyon Bridge said it first contacted CFIUS about the deal, the $1.3 billion deal has stalled, with partners citing political factors as the main reason.

Ray Bingham, a partner at Canyon Bridge, told The Wall Street Journal that since last year's presidential election, "everything related to China has been feared, harshly treated and portrayed in an unfavorable light." He said the scrutiny of this deal was primarily political.

The willingness of Bingham and other partners at the firm to talk about the deal’s vetting woes is unusual because few companies are willing to discuss their experiences with CFIUS, the secretive interagency panel that reviews foreign investments in the U.S. for national security concerns.

Canyon Bridge's collaboration with Lattice Semiconductor has been a focal point in the intensifying U.S.-China fight over semiconductors, the chip technology that powers computers, cell phones and a slew of military hardware.

Last year, U.S. government concerns grew after Chinese companies repeatedly tried to buy U.S. semiconductor manufacturers. Canyon Bridge is a private equity firm registered in Palo Alto and funded by the Chinese government. The company's structure alarmed U.S. lawmakers. Then came the U.S. presidential election, when Donald Trump's portrayal of China as a trade predator further soured the atmosphere around Chinese deals, and Chinese companies' acquisitions have faced more scrutiny from CFIUS in recent months.

Canyon Bridge is currently on its third attempt to get approval from CFIUS, after failing the previous two times during the review period, which lasted about 2 1/2 months each. CFIUS is led by the Treasury Department and includes representatives from the Defense, State, Justice and Commerce departments, among other agencies.

A Treasury Department spokesman said protecting U.S. national security is CFIUS's primary responsibility and they take that responsibility very seriously.

Canyon Bridge Managing Partner Ben Chow said he and his partners have been open with CFIUS about the sources of their funding, which he said comes from 99% of China Reform Holdings Corp., a wholly state-owned Chinese investment company.

Chow said in the interview that they never hid anything.

Lattice Semiconductor Chief Executive Darin Billerbeck said in a separate interview that the company had proposed stronger protections for its intellectual property to prevent it from being transferred to China, and that officials had not indicated any problems during its initial meeting with CFIUS. "Officials said based on the data it had submitted, there shouldn't be a big problem," he said.

CFIUS has since told the parties it does not intend to approve the deal, citing unresolved national security concerns, people familiar with the matter said. After the latest setback, the companies considered taking the deal directly to Trump, a risky move given that the president typically accepts CFIUS's advice and such a high-level veto could hurt other deal prospects, the people said. The companies ultimately decided to withdraw and resubmit their applications in June.

Derek Scissors, a China expert at the American Enterprise Institute, said that even if the deal falls through, Canyon Bridge’s decision to speak out will likely benefit China.

"It could be a win-win situation for the Chinese government," said Shi Jiandao. If the strategy helps the deal get approved, China gets a semiconductor company. If it fails, the deal will become an argument for the Chinese government to talk about the fraught U.S.-China trade relationship.

If the deal is rejected, the Chinese will likely keep bringing it up again and again, Scissors said, adding that Lattice and Canyon Bridge will be mentioned repeatedly over the next three years.

A bipartisan group of 22 House members, led by Republican Rep. Robert Pittenger of North Carolina, wrote to CFIUS in December about the Lattice deal, expressing concern that the deal could provide China with critical military technology and accusing Canyon Bridge of initially trying to cover up its Chinese government background.

Lattice sold its military design subsidiary in 2012, the same year the FBI charged two Chinese nationals with conspiring to obtain military-grade chips from the company. Lattice said it currently only produces civilian chips, which are mainly used in consumer electronics and do not have the thermal shields and other features required for military chips.

Billerbeck remains optimistic that Trump will be open to the deal. In theory, Trump could approve the deal despite CFIUS's objections. Billerbeck said he knows Trump is a very smart businessman and he knows if he has 10 minutes to explain the deal to Trump, Trump will say it's a good deal.

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