Politics, Protectionism and Posturing

It was announced on Monday that the German Federal Ministry of Economic Affairs and Energy was reopening review proceedings for regulatory approval of the takeover of technology company Aixtron by Chinese investment fund Fujian Grand Chip. According to the bidder, the official reasoning stated that “information available to the German Federal Government indicates the knowhow of AIXTRON also compromises security-related technologies, in particular the defence sector, which could be revealed through the contemplated acquisition”¹.

Until this German regulatory flip-flop, the only real hurdle to the deal closing was US (CFIUS) approval, which had not yet been forthcoming. Conspiracy theorists claim that an Aixtron-Chinese tie-up would have put US competitors of Aixtron at a commercial disadvantage in China. Nevertheless, as Aixtron could divest its tiny US presence as an obvious remedy to any US regulatory objections, there was speculation as to what new information from whom sparked the change of mind at the German Economic Ministry. According to a report today, the information came directly from US intelligence services.²

Newspaper reports yesterday claimed that Aixtron was conducting “classified research” with US Energy Department laboratories and directly cooperates with such esteemed US defence agencies like Defence Advances Research Projects Agency and the Sandia National Laboratories at the Albuquerque Army Air Base³. Further reports today claim that chips produced by Aixtron might be used in a Chinese nuclear programme.⁴ Somewhat bafflingly the German government is yet to ask Aixtron about these claims.

Aixtron produces semiconductor manufacturing tools. It does not produce chips or devices. It appears not to have any direct sales to the defence industry; nor do Aixtron employees engage in classified research for the US government. It is also presumably not privy to any sensitive information as to how its customers might use its tools for defence applications. The extension of the German Economic Ministry logic that this deal is a danger to security would perhaps prevent a merger between a Chinese and German steel company purely on the basis that steel is used in the manufacturing of US and German tanks. Moreover, since Aixtron has export licenses to sell its tools into China, it is also not clear why Chinese investors owning Aixtron rather than its products should be an issue even if any of these highly dubious allegations were credible.

Existing rules in Germany generally allow governments to stop takeovers if they threaten energy security, defence, media concentration or financial stability. German Economic Minister Sigmar Gabriel, who presumably made the decision to withdraw Aixtron’s clearance certificate, has recently called for EU member states to be allowed to prevent non-EU investors acquiring more than 25% of voting rights of an EU company. Gabriel is also the leader of Germany’s Social Democrats, the junior partner in Merkel’s Grand Coalition. With Federal Elections due next year, Gabriel would seem to be aligning his party with a populist backlash against Chinese buyers of German companies whatever the merits of the individual deals.

Often governments object to deals on the basis that the acquirer will aggressively restructure the business of the acquired company leading to cuts to investment and significant job losses. The tragedy of this intervention is that Chinese investment would seem to be necessary to secure jobs and investment at Aixtron. Mr Gabriel therefore not only risks unwittingly playing the stooge of American commercial interests, but his protectionist posturing over Chinese investment would seem utterly irresponsible for Aixtron’s stakeholders and set an alarmingly arbitrary precedent for future government interference in EU financial markets.

Barry Norris and Archie Tulloch
Argonaut Capital, October 2016