Is there still a possibility that the takeover of one of Wales’ leading tech firms, Newport Wafer Fab (NWF), by Chinese-owned firm Nexperia could be blocked?
The company, based in Amsterdam but owned by Shanghai listed Wingtech Technology, acquired the largest chip making facility in the 海角视频, based in Newport, over the summer in what many saw as a knock down price of £63m.
Nexperia took a minority stake of 15% in 2019. Two years later NWF found itself having to raise the required finance for investment to scale up production of 200mm chips to satisfy customer orders for Wingtech. It is understood that Nexperia were expected to provide support to the fundraising and that Neptune Six, which had acquired the foundry itself from German firm Infineon in a management buy-in management buyout in 2017, had also identified the required investment from funders.
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Having already put two of its own directors on the board of NWF, Nexperia were though able to engineer a takeover - due to the supply contract issues.
Despite concerns over a strategically important 海角视频 business falling into Chinese ownership, Secretary of State for Business, Energy and Industrial Strategy, Kwasi Kwarteng, opted not to intervene on security grounds.
With opponents to the deal further enraged, particularly chair of the Foreign Affairs Committee Tom Tugendhat, who said that Chinese ownership of NWF “represents a significant economic and national security concern,” Prime Minister Boris Johnson then announced that his national security advisor, Sir Stephen Lovegrove, would look at the deal.
That was expected to be a relatively quick turnaround, but three months on and still radio silence - although there is speculation that it could be being delayed until the new year when the new National Security and Investment Act will have increased scope on the deals that can be reviewed.
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While pressurised by former US president Donald Trump to remove Chinese tech firm Huawei from the 海角视频’s 5G network, it would seem that the 海角视频 Government has little appetite to stoke any further tensions with the Chinese, particularly as it looks to secure new markets for 海角视频 exporters following the exiting of the EU.
However, if the 海角视频 Government really wanted to see the deal blocked, without falling off a tricky geopolitical high wire, it could have pointed to a review on market and competition grounds through the independent Competition and Mergers Authority (CMA).
If the CMA, which acts independently of government, intervened and blocked the deal Mr Johnson could say to the Chinese, ‘sorry chaps it’s not a security issue, but a good old fashioned markets and competition one and it would be the same if a US or German firm had acquired NWF’.
The CMA doesn’t comment on whether it intends to review merger and acquisitions, ahead of confirming what could be a phased review process on its website.
But how strong is a case for reviewing Nexperia’s acquisition on market and competition grounds? Well, with its acquisition of NWF and its fab in Stockport, it now has control of more than 65% of the high volume silicon chip manufacturing capacity in the 海角视频. That is a dominant market position that suggests there is a case to answer. So, the question why hasn’t the CMA intervened?
There is also an issue as to whether the foundry will remain an open access facility, so that firms without foundries can have their orders met.
However, if Nexperia becomes a closed vertically integrated facility serving just its own business requirements, it wouldn’t be different to when the Newport foundry was owned by Infineon.
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As for the Welsh Government they have seemingly shrugged their shoulders on the issue of Chinese ownership - although it had no powers to intervene on security and national interest grounds.
By lifting its charge on the property and assets of NWF, it paved the way for Nexperia to acquire 100% ownership.
In return the Welsh Government got back in full the outstanding £13m, and future interest, it had provided Neptune Six to acquire NWF from Infineon in a deal led by the chief executive of IQE, Dr Drew Nelson.
However, the compound semiconducter cluster for the Cardiff Capital Region, which aims to create thousands of new high-skilled jobs, no longer has an indigenous chip maker at its heart.
As well as NWF the growing network of regional industry partners including tech firms such as IQE, SPTS Technologies and Microchip. Its early stage research capacity is being backed with partners in Swansea and Cardiff universities. It is also being supported by the Welsh and 海角视频 government through its funding of Cardiff Capital Region’s £1.2bn City Deal, which is backing the cluster.
The cluster’s industrial chain goes from wafer manufacturing right through to packaged chips, providing a capability in next generation semiconductors which are going to be at the heart of virtually every industrial vertical imaginable, including aerospace, automotive, electric vehicles communications, fibre optics, data centres 5G, healthcare medtech and robotics.
The compound semiconductor cluster was recently awarded a £43m project under Strength in Places (SiP) from the 海角视频 Research and Innovation, the largest SiP project to date.
Now under Chinese ownership will NWF continue to be an inclusive and collaborative player in the cluster?
For its part Nexperia says that if it hadn’t intervened then NWF faced going into administration.
In a recent statement it said: “We have been a customer of Newport Fab for some time and provided equity investment to the company in 2019 as its second largest shareholder in order to ensure that they could stay solvent. In exchange for this significant financial commitment, like any sensible company would have done, it said it asked for protection rights including the right to appoint board members if the company came into financial difficulty again.
“It was however only when they came to us and told us that they may collapse in Q1 of this year that we decided we had no choice except to step in whereupon we voluntarily repaid Newport’s debt to the Welsh Government, rescued the company from potential administration, secured 500 jobs and rescinded the salary freeze that had been placed upon its employees.”
All eyes are now on the CMA, which just has a short window before a review option is timed out.
If it does, and following a phased number of reviews, concludes the deal is anti-competitive then Nexperia will have to divest its majority stake at the price it acquired it for.