In a wave of a protectionist reaction of the German politicians against active Chinese investors, the takeover of the German chip manufacturer Aixtron by China was halted, despite receiving an official approval last month.
The German government has taken back the clearance for Aixtron's (NASDAQ: AIXG) buyout deal that Merkel's office issued to the Chinese Fujian Grand Chip Investment Fund earlier in September. Yesterday, German Deputy Economic Minister Matthias Machnig announced that the government had withdrawn the approval of this deal, with a new investigation to begin immediately, reports German Die Welt. Machnig mentioned that the government referred to some newly-discovered critical security information that caused an additional round of reviews.
The government's unexpected decision has complicated the process of acquisition of the German chip manufacturer Aixtron by the Chinese FGC priced at €670 million. Shorty after the decision was announced, Aixtron's shares slumped more than 10% to the level slightly over €5, which is lower than the takeover price that FGC agreed to pay per each AIXG share. The reason for such a quick and dramatic decline in the stock price is the growing concern about whether the German government should interfere in the acquisition plans of foreign investors interested in buying companies of "strategic" importance. And yesterday's news indicate that these concerns are not empty.
It all started this year, when German market got increasingly more attractive to Chinese investors coming with record-high investments. According to Bloomberg, Chinese investors have already completed or in the process of finalizing acquisitions of German companies worth over €11.3 billion this year, which is 8 times higher than in 2015. German politicians find these numbers particularly worrisome and have been discussing a possibility of introducing stricter legislations for foreign acquisitions after a Chinese company Midea (CH: 000333) took over a German industrial robot producer Kuka earlier this year. Kuka was considered one of Germany's most innovative companies in the robotic sector and the fact that China acquired almost 95% of Kuka has distressed many.
“Kuka is a successful company in a strategic sector that is important for the digital future of European industry,” said Günther Oettinger, the EU’s Digital Economy Commissioner, as reported by the FT.
Oettinger has been one of the most active politicians pushing for changes in the EU legislation allowing the government to monitor large international acquisition deals closer than before. At the same time, Germany's Economic Minister Sigmar Gabriel, who is about to go on a business delegation trip to China, has also supported limiting foreign acquisitions if they involve "key technologies that are of particular importance for further industrial progress", reports the Financial Times. Currently, German law allows the government to interfere in the takeovers only if they threaten energy security, financial stability or defence of the country, which most of the acquisitions coming from Chinese investors don't do.
“It’s absolutely right to initiate this debate at the European level. Everybody has to play by the same rules. Clearly, there are many countries, including big ones such as China, that make market access or corporate takeovers difficult or effectively impossible,” Oettinger said in an interview, reported by Bloomberg.
What Oettinger refers to here is yet another point of Germany's concerns: restrictiveness of Chinese market for German takeovers. When Kuka's acquisition was reviewed by the authorities, Oettinger called upon the European companies to make a competitive bid for the robot maker but no one came forward. At that time, Merkel complained that the Chinese side was not so "welcoming" towards German investors and the Chinese government did not soften the investment restrictions for German companies while still pushing Chinese firms to expand their presence in Europe.
Reuters mentions that not only Germany has taken steps to add hurdles for Chinese investors in acquiring local businesses. Australia has completely blocked the $7.7 billion acquisition of its largest energy grid by the Chinese investors back in August, explaining it by national security concerns that were not specified. Similarly, Theresa May, the new Prime Minister of the United Kingdom, asked for an additional investigation of a $24 billion nuclear power project that was partially financed by China, yet she approved it 2 months later. All these examples show that the countries are unsure about how to proceed with the generous foreign investments coming from China that are not much to their liking.
But let's go back to Aixtron. The company's stock has lost over 10% of its value on the news of the complications around the deal that was approved by the majority of the company's shareholders earlier this month. The government's decision to question the deal could seriously affect Aixtron's business as the company's stock fell almost 50% last year when Aixtron had one of its biggest orders cancelled, reports Reuters. Therefore, the company's acquisition by FGC could be Aixtron's only chance to recover from last year's losses and make some profits. The company's management warned the shareholders that if the deal with FGC did not work out, the only realistic alternatives for Aixtron would involve downsizing workforce and hope for a demand recovery.
"If the deal fails, Aixtron’s future looks bleak and additional deep restructuring measures should be expected," an analyst Tim Wunderlich told Reuters.
Wunderlich advises the investors to sell Aixtron's shares and not wait until the the conflict is solved, as there is a chance that this time German government could actually go as far as to cancel the deal altogether.