MULTINATIONALS: Unigroup’s Micron Bid Offers Trust-Building Opportunity
Bottom line: The purchase of Micron by Tsinghua Unigroup offers a good chance for Sino-US confidence building if Washington signals it will fairly consider such a deal and Unigroup demonstrates its actions are commercially driven.
A potential mega-deal that would see China’s Tsinghua Unigroup buy leading US memory chip maker Micron Technology (Nasdaq: MU) could become a major trust-building exercise between China and Washington if handled properly, but could also quickly end in an angry war of words if the opposite occurs. Both sides need to take important steps to ensure fair trade in the case, which is sensitive because it involves the acquisition of a US high-tech leader by a company with close ties to China’s top science university.
For its part, Unigroup could take steps to show its independence from Tsinghua University, and more broadly to show that it is a commercially-focused business that doesn’t make decisions based on government orders or support. For its part, Washington could signal it is willing to consider a deal that appears to pose no threat to national security, even though it would see a major technology company taken over by a Chinese peer.
At the end of the day there’s no guarantees that a sale could be completed even if both governments agree, since its size and cross-border nature would make it very complex. But at the very least, a prudent and thoughtful handling of the exercise could help to improve trade relations between China and the US, and also to reduce political frictions over sensitive national security issues.
The latest mega deal involving a Chinese purchase of a foreign company splashed into the headlines 2 weeks ago, when media reported that Unigroup was weighing a bid for Micron, the largest US maker of dynamic random access memory (DRAM) chips that power most computers and high-tech gadgets. (previous post) Reportedly valued at $23 billion, the deal would represent the largest takeover of a foreign high-tech firm ever by a Chinese buyer.
The proposed deal almost immediately generated controversy as some observers said it could get vetoed by Washington on national security grounds. But others said Micron’s technology is widely available throughout the world, and is used by most of its other major rivals such as leading global DRAM maker Samsung.
Micron later reportedly told Unigroup that it didn’t want to pursue a deal due to the risk of a veto by Washington, though that may have been a bargaining tactic. (previous post) An executive from Unigroup’s parent responded last week by saying that he still wanted to pursue a deal, though he added the Chinese company hadn’t had any contact with US regulators. (English article; Chinese article)
Unigroup is closely linked to Tsinghua, which is a leading government-funded university. Over the last year the company has embarked on an aggressive series of acquisitions and major tie-ups with the likes of US tech giants Intel (Nasdaq: INTC)) and Hewlett-Packard (NYSE: HPQ), as part of a drive by Beijing to build up the nation’s laggard microchip sector.
Despite Unigroup’s Tsinghua ties, the official last week emphasized that the company was acting on its own initiative and not under any directives from Beijing. If that’s true, Unigroup should continue to send similar signals that it is an independent, commercially focused company, in a bid to ease Washington concerns that it’s simply an arm of Beijing.
Such signals could include the release of more financial data, which could be reviewed by a globally respected auditor. Unigroup could also disclose how it plans to finance such a massive purchase, and show that its funding will come from private sector sources, and not state-run lenders that often make their decisions based on Beijing’s policy directives.
For its part, Washington could signal that it is willing to keep an open mind on such a transaction and give it objective consideration if and when the 2 sides sign a deal.
Washington has a relatively good record in that regard, recently approving 2 sensitive deals that some said could have been rejected on national security grounds. One of those saw leading US pork producer Smithfield purchased by China’s WH Group (HKEx: 288), while the other saw Canadian oil exploration giant Nexen bought by the state-owned CNOOC (HKEx: 883; NYSE: CEO), both in 2013. Last year Washington also approved the sales of Motorola Mobility and IBM’s (NYSE: IBM) low-end server business to Lenovo (HKEx: 992) in 2 separate major deals.
A Micron sale to Unigroup would test new ground in Washington’s tolerance for such purchases, since it would mark the sale of a leading high-tech company that is still relatively cutting-edge. But the deal really doesn’t appear to involve any technology that could threaten national security, and Washington should send signals that it will objectively consider such a transaction if Unigroup can demonstrate that it’s a commercially-drive company that’s independent from Beijing.
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