June 22, 2021

A U.S. interagency panel has moved to block the acquisition of a South Korean chipmaker by a Chinese investor, signaling what observers say is a significant expansion of U.S. jurisdiction in curtailing Chinese access to strategic semiconductor technologies.

The Committee on Foreign Investment in the United States (CFIUS) issued an interim order on June 15 blocking the Chinese private equity fund Wise Road Capital from acquiring Magnachip Semiconductor Corp. of Seoul, South Korea. The regulatory step puts the deal on hold, but observers said it’s unlikely U.S. and Korean regulators would allow it to proceed in its present form, citing national security concerns.

Wise Road’s $1.4 billion acquisition Magnachip was announced in March. It was reportedly expected to close later this year.

According to a June 17 filing with the U.S. Securities and Exchange Commission, CFIUS also prohibited Magnachip from delisting from the New York Stock Exchange. A day later, Korean regulators weighed in, reportedly designating Magnachip’s OLED drivers as a “national core technology.”

Magnachip designs and manufactures analog and mixed-signal semiconductors for automotive, communications, consumer, Internet of Things and industrial applications. It is one of the first chip makers to mass produce OLED driver chips widely used in smartphone displays. Wise Road is an investor in Huaqin, a leading Chinese smartphone manufacturer also backed by Qualcomm.

In March, Magnachip announced the sale of its Foundry Services Group and the larger of its two 8-inch wafer fabs to a pair of Korean venture firms in a deal worth about $435 million.

After accepting the Wise Road tender, Magnachip received an superior unsolicited bid from Cornucopia Investment Partners to acquire all outstanding shares of common stock. According to reports, investors have initiated a probe of Magnachip’s board of directors for failing to consider a higher bid.

Analysts note that intervention by CFIUS in the proposed deal is significant and perhaps unprecedented since Magnachip has little if any presence in the U.S. market beyond incorporation in Delaware and shares traded on a U.S. stock exchange (NYSE: MX).

The joint U.S.-South Korean effort to block Wise Road’s acquisition of Magnachip represents a “major extension” by CFIUS of its jurisdiction over foreign technology acquisitions, according to Chris Miller, an assistant professor at Tuft University’s Fletcher School of Law and Diplomacy.

“Magnachip’s technology is advanced, but it isn’t particularly unique. If you were to draw up a priority list of companies that you didn’t want to fall into China’s hands, Magnachip wouldn’t be at the top of the list,” Miller asserted in an article posted this week on the website

The Biden administration has backed off of “decoupling” economically from China, instead advocating competition while building resilient U.S. supply chains for key technologies such as semiconductors.

Still, the move to block the Magnachip acquisition represents a new front in U.S. efforts to limit Chinese access to advanced chip technologies.

“The fate of the deal will send a major message about how Washington is thinking about the United States’ economic relationship with China,” Miller wrote.