Takeaways
- In its review of Infineon Technologies’ acquisition of Cypress Semiconductor, CFIUS will likely examine Cypress’ gallium nitride-on-silicon carbide, or GaN-on-SiC, technology used in chips sold to the Department of Defense, according to CFIUS practitioners who have followed the transaction.
- Infineon’s bid for Cypress comes two years after Infineon’s failed attempt to acquire the Wolfspeed Power & RF division of rival chipmaker Cree. Infineon backed out of that deal after CFIUS raised concerns regarding Cree’s own GaN-on-SiC technology manufactured by its Wolfspeed division, according to a former CFIUS staffer.
- According to one of the CFIUS practitioners following the Cypress transaction, it would not come as a surprise if the deal’s CFIUS review went the full 75 days, with the potential for a second review cycle. Additionally, Infineon’s headquarters in the U.S.-allied nation of Germany likely would not prevent CFIUS from raising concerns with the Cypress transaction if the panel finds issues with the merger.
The CFIUS review of Infineon Technologies’ bid for rival chipmaker Cypress Semiconductor will likely focus on the nature of a specific type of semiconductor offered by Cypress that is used by the Defense Department, according to CFIUS practitioners who have followed the transaction.
Announced on June 3, Infineon’s bid for Cypress comes approximately two years after the company
withdrew its proposal to purchase chipmaker Cree’s Wolfspeed Power & RF division in February 2017. Cree disclosed in the same month that the termination came after the parties were “unable to identify alternatives which would address the national security concerns” of CFIUS.
According to a former CFIUS staffer familiar with the Wolfspeed/Infineon deal, CFIUS likely had concerns regarding the transfer of Wolfspeed’s gallium nitride-on-silicon carbide technology, or GaN-on-SiC, which is used in Wolfspeed’s radio frequency devices. The former staffer noted that CFIUS will likely look into the same sort of technology in its review of the current Cypress deal. “That will be a key focus in the review,” the former staffer said.
According to the staffer, CFIUS will likely examine whether the GaN-on-SiC technology used by Cypress in its chips is as “leading edge” as that used by Wolfspeed at the time of its attempted takeover by Infineon.
Cypress manufactures and sells radiation-hardened semiconductors which are made using GaN-on-SiC technology, according to the company’s website. Given that the company’s primary customer for this technology is the Department of Defense, the chip’s defense application is an additional factor likely to cause intense CFIUS scrutiny, according to a CFIUS practitioner, who previously worked as a staffer at the DOD. “Anything that’s used by Defense will garner CFIUS’ attention,” the practitioner said.
Headquartered in Neubiberg, Germany, Infineon’s base in a country considered a U.S.-friendly ally did not prevent CFIUS from raising serious concerns in Infineon’s previous bid for Wolfspeed. According to a CFIUS practitioner following the transaction, regardless of whether it would fall into the hands of a hostile country such as Russia or a friendly one such as Germany, CFIUS will not hesitate to raise issues with a deal that involves the transfer of sensitive U.S. technology. “That didn’t stop them from taking issue with the Wolfspeed deal,” the CFIUS practitioner said.
The same CFIUS practitioner noted that the likelihood of an extended review by the interagency panel is high, given the sensitivity of the type of technology being transferred. “I can see this going the full 75 days, and maybe even a second cycle if there are concerns,” the practitioner said.
While recent transactions in the semiconductor industry have either been terminated by the parties or blocked by CFIUS, such as the Wolfspeed deal and Canyon Bridge’s
bid for Lattice Semiconductor in 2017, others have gotten through CFIUS review without a block. In May 2018, Marvell Technology received CFIUS clearance to acquire rival chipmaker Cavium. Marvell
disclosed that it had entered into a “Letter of Assurance (LA) where we have agreed to implement certain cyber security, physical security and training measures to protect national security.”
According to their
merger agreement, Infineon and Cypress plan on filing a draft joint voluntary notice with CFIUS “as promptly as practicable” after the date of their agreement. The companies will then make a final joint voluntary notice to CFIUS after the interagency panel confirms that it has no further comment on their initial draft filing.
Neither representatives for Infineon nor Cypress responded to inquiries as to whether the companies have filed their notices with CFIUS. The companies have said they expect to close their transaction by the end of calendar year 2019 or early 2020.
Reorg M&A’s previous coverage of this transaction can be found
HERE.
--Matt Tracy