Beijing Sai Microelectronics Co., Ltd. (hereinafter referred to as “Sai Microelectronics”) did not expect that an acquisition plan that had signed an agreement at the end of last year failed to materialize.
On November 10, Sai Microelectronics announced that on the evening of November 9 (Beijing time), the company and relevant domestic and foreign subsidiaries received the official decision document from the German Federal Ministry of Economic Affairs and Climate Action, prohibiting Sweden Silex (a wholly-owned subsidiary of Sai Microelectronics in Sweden) from acquiring Germany FAB5 (German Elmos is located in Dortmund, North Rhine Westphalia, Germany).
Sai Microelectronics said that Sweden Silex submitted the FDI application for this acquisition transaction to the German Federal Ministry of Economic Affairs and Climate Action in January 2022. Since then, Silex of Sweden and Elmos of Germany have kept close contact with the Federal Ministry of Economic Affairs and Climate Action of Germany. This intense review process lasted about 10 months.
The results of the review were not as expected. Sai Microelectronics told the 21st Century Business Herald reporter, “This result is very unexpected for both sides of the transaction, and is inconsistent with our expected results.” Elmos also “expressed regret” about this matter.
Why did this transaction “completely motivated by the business of expanding business” cause the vigilance and obstruction of the German Federal Ministry of Economic Affairs and Climate Action? It is worth noting that not long ago, COSCO Shipping Port Co., Ltd. also encountered obstacles in its acquisition of Hamburg Container Terminal in Germany. After discussion, the German government finally agreed to a “compromise” plan.
As for the next step, Sai Microelectronics told 21 reporters that the company received the formal results last night and is now arranging a meeting for relevant discussion. There is no clear next step.
On November 9, 2022, Zhao Lijian, spokesman of the Ministry of Foreign Affairs of China, said in response to relevant questions at a regular press conference that the Chinese government has always encouraged Chinese enterprises to conduct mutually beneficial investment cooperation overseas in accordance with business principles and international rules and on the basis of abiding by local laws. Countries including Germany should provide a fair, open and non discriminatory market environment for the normal operation of Chinese enterprises, and should not politicize normal economic and trade cooperation, let alone engage in protectionism on the grounds of national security.
A ban
The commercial acquisition of German enterprises by Chinese enterprises failed.
On November 10, Sai Microelectronics announced that on the evening of November 9 (Beijing time), the company and its domestic and foreign subsidiaries received the official decision document from the German Federal Ministry of Economic Affairs and Climate Action, prohibiting Sweden Silex from acquiring Germany FAB5.
At the end of last year, both parties to the transaction signed the relevant acquisition agreement. According to the announcement, on December 14, 2021, Sweden Silex and Germany Elmos Semiconductor SE (a company listed on the Frankfurt Stock Exchange of Germany) signed the Equity Purchase Agreement. Sweden Silex intends to purchase the assets related to the automobile chip manufacturing line of Germany Elmos located in Dortmund, North Rhine Westphalia, Germany (Germany FAB5) for 84.5 million euros (including 7 million euros of the proceeds of work in progress).
Sai Microelectronics told the 21st Century Economic News reporter, “This transaction is completely motivated by the business of expanding the business field. This is a good opportunity to cut into the layout of the automobile chip manufacturing industry, and FAB5 is compatible with our existing business.”
Elmos official website shows that the company develops, produces and sells semiconductors mainly used in the automobile industry. According to Sai Microelectronics, the chips produced by the German production line (Germany FAB5) to be acquired this time are mainly used in the automobile industry. This production line was originally an internal part of Elmos under the IDM business model, mainly providing chip foundry services for the company. At present, Germany’s FAB5 customer is Elmos, Germany. Of course, there are a wide range of cooperative manufacturers of chips produced, including suppliers of various auto parts such as German mainland, Delphi, Japanese Dianzhuang, Korean Hyundai, Avemai, Alpine, Bosch, LG Electronics, Mitsubishi Electronics, Omron Electronics, Panasonic, etc.
Sai Microelectronics said to the 21st reporter: “Since the signing of the agreement, the transaction process between the company and Elmos, Germany, has lasted nearly a year. The plan is to steadily advance to the final delivery. Now this result is very unexpected for both sides of the transaction, which is inconsistent with our expected result.”
On November 9, Elmos also released a press release on this matter, saying that the transfer of new micro mechanical technology (MEMS) from Sweden and the important investment in the Dortmund factory could have strengthened Germany’s semiconductor production. Due to the ban, the sale of the wafer factory cannot be completed. Relevant companies Elmos and Silex expressed regret about this decision.
Elmos also mentioned that after about 10 months of intense review process, the German Federal Ministry of Economic Affairs and Climate Action indicated an approval subject to conditions to interested parties and submitted a draft approval. The ban now announced was decided immediately before the end of the review period, and no necessary hearing was given to Silex and Elmos.
It can be seen that both parties to the transaction are very sorry for this “premature” transaction. Elmos said that it would carefully analyze the decisions received and whether there were major violations of the rights of the parties, and decide whether to take legal action.
Two review regulations
According to the statement of the German Federal Ministry for Economic Affairs and Climate Action, this transaction is prohibited “because the acquisition will endanger the public order and security of Germany”.
Robert Habeck, the German Economy Minister, said at the press conference: “When important infrastructure is involved or there is a risk that technology flows to non EU acquirers, we must pay close attention to enterprise acquisitions.”
Ding Chun, director of the European Studies Center of Fudan University and professor of the European Union Jean Monet, said to the 21st Century Economic Reporter that China’s manufacturing capacity and competitiveness are constantly improving, and Germany, as a traditional manufacturing power, is not adapted to this. This transaction involves automobile chip manufacturing. In the context of the general lack of cores in the automobile industry, Germany is more nervous.
It is worth mentioning that on February 8 this year, the European Commission passed the European Chips Act, which aims to strengthen the EU semiconductor ecosystem, ensure the elasticity of the chip supply chain and reduce international dependence. It can be seen that the EU and its member states hope to achieve greater autonomy in the semiconductor field.
In recent years, some German government officials have repeatedly put “pressure” on the acquisition of Chinese enterprises. Not long ago, COSCO Shipping Port Co., Ltd. also encountered obstacles in its acquisition of Hamburg Container Terminal in Germany. Similarly, this share purchase agreement was signed last year, and both parties agreed to buy and sell 35% shares of the target company. A few days ago, this port acquisition case caused controversy in Germany. Some German government officials believed that this investment would disproportionately expand China’s strategic influence on German and European transport infrastructure. However, German Prime Minister Schultz has been actively promoting this acquisition, and finally promoted a “compromise” plan – approving the acquisition of less than 25% of the shares.
For these two transactions, the “tools” that the German government obstructed were the Foreign Economic Law (AWG) and the Foreign Economic Regulations (AWV). It is understood that these two regulations are the main legal basis for the German government to intervene in foreign investors’ investment activities in Germany in recent years. Zhang Huailing, associate professor of the Law School of Southwestern University of Finance and Economics and a doctor of law from Humboldt University in Berlin, Germany, told the 21st Century Economic Reporter that these two regulations authorize the German Federal Ministry of Economic Affairs and Climate Action to review the merger and acquisition of German enterprises by EU and non EU foreign investors.
Zhang Huailing introduced that since Midea acquired KUKA in 2016, the German government has frequently revised the above regulations. According to the latest revision of the Foreign Economic Regulations, the security review of German foreign investment is still divided into two areas: “special industry security review” and “cross industry security review”. The former is mainly aimed at military and other related fields, and the threshold for review is that foreign investors obtain 10% of the voting rights of the target company; The “cross industry safety review” is differentiated according to different industries: first, the 10% voting threshold is applied to the mergers and acquisitions of seven statutory key infrastructure enterprises (such as key infrastructure operators and their key component suppliers recognized by the security department, and public media enterprises); Second, the 20 statutory key technologies (especially semiconductor, artificial intelligence, 3D printing technology, etc.) apply the review threshold of 20% voting rights. Both need to be declared in advance. The third is other fields except the above fields. The 25% voting threshold is applicable without prior declaration.
In COSCO Shipping’s port acquisition case, 25% has become a key threshold. The German cabinet clearly stated that without a new investment review procedure, this threshold cannot be exceeded in the future (further acquisitions).
As for the Swedish Silex acquisition of German FAB5, Zhang Huailing pointed out that Sai Microelectronics faced three main pressures: first, although the direct acquirer of this transaction was an enterprise located in Europe, German law provided anti abuse and circumvention clauses, that is, if the transaction arrangement was designed to circumvent the review of third-party acquirers, even if the acquirer was an EU enterprise, security review tools could be applied; Secondly, the semiconductor industry is clearly listed in the key technology catalogue “which may threaten public order and safety in particular”; Moreover, the biggest risk of security review is that it can be launched ex officio after the review, and there have been cases of approval and revocation.
Zhang Huailing introduced that “the legislative principles of the Foreign Economic Law stipulate the possibility of the state’s intervention in foreign economic and trade exchanges. This intervention tool was not used frequently before. However, with the changes in geopolitics and economy in recent years, this tool has been used more and more frequently”. The uncertainty of Chinese enterprises’ investment activities in Germany seems to have increased.
Triple damage: to oneself, to others, to industry
There is no doubt that such commercial politicization will not benefit any party.
Ding Chun said that at present, the three parties in Germany are jointly in power, while the Green Party and the Liberal Democratic Party have a strong voice to get rid of their dependence on China, which has greatly interfered with the business cooperation between China and Germany. He said that the politicization of economic issues and the artificial isolation in business cooperation are in conflict with the principles and concepts of globalization, free trade and free competition advocated by Germany, and even run counter to them to some extent. Such acts are harmful to others and themselves.
“For himself, this is not conducive to the economic operation of Germany and the well-being of the local people. In particular, Germany is currently facing huge downward pressure on the economy. For him, this vigilance and prevention against other countries is also a major damage to the global economic recovery. And at present, Germany’s vigilance against Chinese companies acquiring German companies has not improved.” Ding Chun said.
For the industry, it is also a dark cloud. As Elmos mentioned, this transaction “could have strengthened German semiconductor production”. Duan Zhiqiang, the founding partner of Wanchuang Investment Bank, told the 21st Century Economic Report that the failure of this acquisition was regrettable, not only for enterprises, but also for the entire industry.
Duan Zhiqiang said that the diffusion of industrial technology is generally spread from mature regions to emerging markets. In the normal development path of the semiconductor industry, with the gradual diffusion of technology, more social resources and industrial resources will be attracted to participate in it, so as to continuously reduce production costs, promote the technology iteration of the industry, and promote the in-depth application of technology scenarios.
“However, based on the fact that the United States or other developed countries have taken such measures, it is actually a new form of trade protectionism. It is not conducive to the healthy development of the whole industry to artificially hinder the promotion and development of new technologies, break the link between industries, and delay the upgrading and iteration of the technology of the entire industry.” Duan Zhiqiang believed that if similar actions were replicated to other industries, it would be more detrimental to the global economic recovery, and there would be no winner in the end.
The year 2022 marks the 50th anniversary of the establishment of diplomatic ties between China and Germany. The commercial cooperation between the two countries has a long history. In the face of global economic uncertainty, bilateral economic and trade activities remain active. According to the 2021 Investment Report of Foreign Enterprises in Germany issued by the German Federal Foreign Trade and Investment Agency, the number of Chinese investment projects in Germany in 2021 will be 149, ranking third. From January to September this year, Germany’s actual investment in China increased by 114.3% (including data on investment through free ports).
Professor, School of International Business and Economics, University of International Business and Economics Wang Jian, the director of the Department of International Business and Economic Cooperation, said to the 21st Century Economic Reporter: “At present, the invisible distance between countries around the world is getting smaller and smaller, and the interdependence and mutual influence between countries are getting deeper and deeper. Of course, this will easily lead to various conflicts and disputes, but regardless of which country, how to obtain mutual trust and a stable development environment in the world is the main factor determining the future destiny.”
Post time: Nov-11-2022