Aixtron could revive takeover despite U.S. block - analysts

By Ben Blanchard and Harro Ten Wolde

BEIJING/FRANKFURT (Reuters) - The sale of Aixtron to Chinese investors could go ahead under new terms if the German semiconductor equipment maker sells its Silicon Valley division separately to get around U.S. objections, analysts said Monday.

On Friday, U.S. President Barack Obama stopped Fujian Grand Chip Investment Fund (FGC) from buying Aixtron U.S., the division of the German company in California where nearly a fifth of its 713-strong workforce is based.

While the 670 million euro ($717 million) deal is small, U.S. opposition is seen as a sign of growing concern in the West about the acquisition of new technology by Chinese players and comes after Washington blocked the sale by Philips of its U.S. lighting business to Asian buyers.

The crux of the issue for Aixtron is that it makes devices which produce crystalline layers based on gallium nitride that are used as semiconductors in weapons systems.

The German firm's technology is being used to upgrade both U.S. and foreign-owned Patriot missile defence systems and the U.S. Treasury Department said on Friday the deal had been blocked due to national security risks.

Aixtron said, however, the U.S. order "was limited to the United States business and did not prohibit the acquisition of Aixtron shares", indicating that a deal could be revived, albeit under revised terms.

"Chinese investors might be willing to take over Aixtron without its U.S. business including U.S. patents and patent applications," DZ Bank analyst Harald Schnitzer said in a client note. "That could be possible but we doubt that GCI (FGC) would be prepared to pay 6 euros per Aixtron share in such a case."

Aixtron shares were up 0.9 percent at 3.86 euros by 1515 GMT well below the 6 euros per share FGC offered in May.

WHITE KNIGHT?

Aixtron's operations in Sunnyvale, California are its third-largest site with manufacturing, sales, service and engineering as well as research and development.

In the first nine months of the year, the U.S. operations contributed 22 million euros or about 20 percent to total sales of 107 million.

Analysts have said Aixtron has a bleak future as a stand-alone company as it struggles in an overcrowded market where Chinese companies call the shots.

Aixtron has also said it needs to cut costs and jobs if the deal falls through, while analysts said a white knight bidder such as U.S. chip equipment maker Applied Materials could emerge.

Another obstacle is that the German Economy Ministry withdrew its approval for the Chinese acquisition in October and is conducting its own review of the transaction.

Aixtron had registered patents for 189 products at the end of 2015, according to its annual report. Of those, 97 were patent protected, with patents pending for the remaining 92.

"Patent protection for inventions is usually applied for in those sales markets relevant for Aixtron, specifically in Europe, China, Japan, South Korea, Taiwan and the United States," the company said in the annual report.

A company spokesman declined to give a geographic breakdown of the patents.

CHINESE ANGER

The U.S. decision to block the Aixtron deal angered China, with the foreign ministry calling it "political obstruction".

Ministry spokesman Lu Kang said China had always supported Chinese firms investing overseas on the basis of market principles, international rules and respecting local laws, adding that the Aixtron deal was purely a commercial matter.

"China resolutely opposes the politicisation of any normal commercial takeover or the wrong move of political obstruction," Lu told a news briefing, saying that China hoped the United States would stop making "groundless accusations" against Chinese firms and provide a fair environment for them.

Aixtron makes so-called Metal-Organic Chemical Vapor Deposition (MOCVD) systems, used to grow crystalline layers for semiconductors, especially those based on gallium nitride.

Gallium nitride is a powdery yellow compound used in light-emitting diodes (LED), radar, antennas and lasers. Gallium nitride technology can boost the power of weapons systems while making them cheaper because it needs less electricity.

($1 = 0.9343 euros)

(Editing by David Clarke/Keith Weir)