Another one bites the dust – Wolfspeed
Cree (CREE) indicated last week that it was terminating its agreement with Infineon Technologies AG (IFX.GR) concerning the sale of its Wolfspeed Power and RF Division. The termination was based on the national security concerns of the Committee on Foreign Investment in the United States (CFIUS), which is an inter-agency committee that reviews the national security implications of foreign investments in US companies. CFIUS is chaired by the Secretary of the Treasury, Steve Mnuchin (since last week) a former Goldman exec, hedge fund manager and film producer (strangely produced and acted in the recent Warren Beatty film, “Rules Don’t Apply”), and has representatives from 16 departments including State, Commerce, and recently Homeland Security. We believe the transaction issues were based on both the raw material used by Wolfspeed for its device production, which is silicon carbide and Gallium Nitride, and the proprietary nature of some of its products, which are likely used in a number of defense related projects. CREE will receive a $12.5m termination fee to soften the blow and will integrate Wolfspeed back into its growth plans.
The committee which operates according to Section 72 of the Defense Production Act (1950) and the Foreign Investment & National Security Act of 2007 whose key provision is the consideration of transactions that impact critical infrastructure as well as energy assets and critical technologies, with regard to the relevant country’s compliance with the US and multilateral counter-terrorism, non-proliferation, and export control regimes[i]. All transactions by a foreign entity must be reviewed by CFIUS with the focus whether funds or technology from a US business might be transferred to a sanctioned country. The committee has 30 days to review a submission and either authorize the transaction or begin an investigation, which can take up to 45 additional days, at which point a decision must be made as to whether the deal is permitted or not. According to a 2006 review, “
CFIUS, which reported its 2014 review last February 2016, noted that in 2014 it reviewed 147 transactions (classified details), a follow-up investigation on 52 of those, with one transaction rejected and 12 withdrawn, with a total value of $2.84t. This was the highest number of reviewed transactions since the Committee’s formation in 2009 and of the 358 reviewed transactions between 2012 and 2014, we calculate that 19% had China as the acquiring country. We note that only one transaction has ever gone to the president for a final decision in the past, with last year’s block of Germany based Aixtron’s (AIXG.GR) takeover by a Chinese consortium the second.
[i] ‘‘(I) the transaction threatens to impair the national security of the United States and that threat has not been mitigated during or prior to the review of a covered transaction under paragraph (1); ‘‘(II) the transaction is a foreign government controlled transaction; or Deadline. VerDate 14-DEC-2004 15:32 Jul 30, 2007 Jkt 059139 PO 00049 Frm 00004 Fmt 6580 Sfmt 6581 E:\PUBLAW\PUBL049.110 APPS06 PsN: PUBL049 PUBLIC LAW 110–49—JULY 26, 2007 121 STAT. 249 ‘‘(III) the transaction would result in control of any critical infrastructure of or within the United States by or on behalf of any foreign person, if the Committee determines that the transaction could impair national security, and that such impairment to national security has not been mitigated by assurances provided or renewed with the approval of the Committee, as described in subsection (l), during the review period under paragraph (1); or ‘‘(ii) the lead agency recommends, and the Committee concurs, that an investigation be undertaken”
The committee which operates according to Section 72 of the Defense Production Act (1950) and the Foreign Investment & National Security Act of 2007 whose key provision is the consideration of transactions that impact critical infrastructure as well as energy assets and critical technologies, with regard to the relevant country’s compliance with the US and multilateral counter-terrorism, non-proliferation, and export control regimes[i]. All transactions by a foreign entity must be reviewed by CFIUS with the focus whether funds or technology from a US business might be transferred to a sanctioned country. The committee has 30 days to review a submission and either authorize the transaction or begin an investigation, which can take up to 45 additional days, at which point a decision must be made as to whether the deal is permitted or not. According to a 2006 review, “
CFIUS, which reported its 2014 review last February 2016, noted that in 2014 it reviewed 147 transactions (classified details), a follow-up investigation on 52 of those, with one transaction rejected and 12 withdrawn, with a total value of $2.84t. This was the highest number of reviewed transactions since the Committee’s formation in 2009 and of the 358 reviewed transactions between 2012 and 2014, we calculate that 19% had China as the acquiring country. We note that only one transaction has ever gone to the president for a final decision in the past, with last year’s block of Germany based Aixtron’s (AIXG.GR) takeover by a Chinese consortium the second.
[i] ‘‘(I) the transaction threatens to impair the national security of the United States and that threat has not been mitigated during or prior to the review of a covered transaction under paragraph (1); ‘‘(II) the transaction is a foreign government controlled transaction; or Deadline. VerDate 14-DEC-2004 15:32 Jul 30, 2007 Jkt 059139 PO 00049 Frm 00004 Fmt 6580 Sfmt 6581 E:\PUBLAW\PUBL049.110 APPS06 PsN: PUBL049 PUBLIC LAW 110–49—JULY 26, 2007 121 STAT. 249 ‘‘(III) the transaction would result in control of any critical infrastructure of or within the United States by or on behalf of any foreign person, if the Committee determines that the transaction could impair national security, and that such impairment to national security has not been mitigated by assurances provided or renewed with the approval of the Committee, as described in subsection (l), during the review period under paragraph (1); or ‘‘(ii) the lead agency recommends, and the Committee concurs, that an investigation be undertaken”
Figure 1 - CFIUS Transaction Breakdown - 2009 - 2014 - Source: CFIUS Annual Report to Congress - 2014 CY
Figure 2 - CFIUS Transactions by Acquiring Home Country - Source: CFIUS Annual Report to Congress - 2014 CY
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