US-China Tensions Affect Mergers and Acquisitions
As the technology war between the US and China escalates, Beijing is delaying approval for mergers involving American companies. This has affected several proposed acquisitions, including Intel Corp.’s $5.2 billion takeover of Israel-based Tower Semiconductor Ltd. and chip maker MaxLinear Inc.’s $3.8 billion purchase of Silicon Motion Technology of Taiwan.
Chinese Preconditions for Mergers
China’s antitrust regulator, the State Administration for Market Regulation (SAMR), has asked companies to make their products available in China as a precondition for approving some transactions. This is an attempt to counter the US’s increased export controls targeting China.
Challenges for US Companies
The demands from Chinese regulators could put US companies in a difficult position, as Washington has enacted legislation restricting American companies’ ability to sell to China and expanding certain types of production there.
Chinese Antitrust Review Process
For multinationals, it doesn’t take much for a merger to trigger a Chinese antitrust review. If two companies in a deal have revenue of more than $117 million a year from China, the merger needs Beijing to sign off. In recent years, Beijing has consolidated all antitrust matters under SAMR and built up its staff.
Merger Reviews as a Tool
As the relationship between the US and China deteriorates, merger reviews have become an additional tool for Beijing in its battle with Washington over access to advanced technology.
Table: Major Mergers Affected by Chinese Regulatory Scrutiny
| Company | Acquisition Target | Deal Value |
|---|---|---|
| Intel Corp. | Tower Semiconductor Ltd. | $5.2 billion |
| MaxLinear Inc. | Silicon Motion Technology | $3.8 billion |
| Broadcom Inc. | VMware | $61 billion |
| Microsoft Corp. | Activision Blizzard Inc. | $68.7 billion |
Background Information
China’s antimonopoly regime, including merger reviews, was established in the late 2000s with encouragement from the US. The aim was to bolster market competition between private-sector and state-owned companies and improve cooperation on competition-law enforcement between Chinese and US regulators.
However, mergers involving large state-owned enterprises remain largely exempt from regulatory reviews, while the system has been refined to give China greater flexibility to review foreign-related deals. Chinese companies and around ten government agencies overseeing various sectors can weigh in on the review process.
As part of its economic coercion strategy, Beijing has increasingly leveraged its merger-review process and antimonopoly rules to advance its political and economic goals. Chinese regulators rarely reject transactions outright, but they often delay and withhold approvals until their demands are met, typically at the expense of foreign competitors.
These tactics have gained traction as China and the US become more deeply embroiled in great-power competition. For China’s leader, Xi Jinping, a key performance measure of his underlings is their ability to fight the US-led Western sanctions, particularly restrictions on China’s ability to access advanced chipmaking and other strategic technologies.
Chinese officials view merger reviews as a relatively subtle and low-cost way to pressure foreign companies and, by extension, their governments. This is in contrast to the more aggressive use of export blacklists, which could potentially hurt China’s access to foreign technology even further.
Impact on Major Mergers
Delays in Chinese regulatory clearance have led to the termination of some deals, such as DuPont de Nemours Inc.’s $5.2 billion deal to buy electronics-materials specialist Rogers Corp. Intel’s proposed takeover of Tower is critical for the company, as it seeks to expand its chip manufacturing capabilities. Other deals awaiting Chinese review include Broadcom Inc.’s $61 billion acquisition of VMware and Microsoft Corp.’s planned $68.7 billion purchase of Activision Blizzard Inc.
Increased Costs for American Companies
According to a 2022 report by the U.S. Chamber of Commerce, even if China’s merger-review delays don’t lead to terminated deals, they raise the cost of doing business for affected American companies. These companies may have to overpay to account for the risks of prolonged Chinese scrutiny.
Potential Divestment from China
Increased costs could lead to more foreign companies planning to divest out of China. Some companies are considering whether they can afford to leave the Chinese market to avoid being beholden to Chinese decisions.
List of Affected Companies
- Intel Corp.
- MaxLinear Inc.
- Broadcom Inc.
- Microsoft Corp.
- DuPont de Nemours Inc.
List of Proposed Acquisitions
- Tower Semiconductor Ltd.
- Silicon Motion Technology
- VMware
- Activision Blizzard Inc.
- Rogers Corp.
Background Information on the Situation
As a journalist, it is essential to provide some background information on the key elements of this story to help readers understand the broader context.
US-China Trade War
The ongoing trade war between the US and China has led to tariffs, restrictions, and increasing tensions between the two countries. This has affected various industries, including technology and semiconductor production.
China’s Antitrust Regime
Since the late 2000s, China has been developing its antimonopoly regime, which includes merger reviews. Initially encouraged by the US, the system was intended to bolster market competition between private-sector and state-owned companies and to improve cooperation between Chinese and US regulators on competition-law enforcement.
Chinese Antitrust Review Process
The Chinese antitrust review process involves various government agencies overseeing economic planning, information technology, and other sectors. These agencies can weigh in on the review process, giving China greater flexibility to review foreign-related deals.
State Administration for Market Regulation (SAMR)
The State Administration for Market Regulation (SAMR) is China’s antitrust regulator, responsible for reviewing mergers and acquisitions involving foreign companies. In recent years, SAMR has played an increasingly important role in leveraging merger-review processes and antimonopoly rules to advance China’s political and economic goals.
Impact on the Semiconductor Industry
The semiconductor industry has been heavily impacted by the US-China trade war, as well as China’s antitrust regime. Many mergers and acquisitions involving American companies have been delayed or terminated due to Chinese regulatory clearance issues, causing increased costs and uncertainty for companies involved in these transactions.