China’s acquisition of Philips’ company was stunned by the US

U.S. vetoed Chinese consortium’s $2.8 billion acquisition of Philips Lumileds for fear of national security

According to a Reuters report on the 29th, the US Foreign Investment Review Committee (CFIUS) rejected the Chinese consortium Go Scale Capital's $2.8 billion acquisition of a majority stake in Philips' LED and automotive lighting component manufacturer Lumileds on the grounds of national security. The acquisition of huge financing transactions has also been ruined. This made the participants quite surprised.

Go Scale Capital is a newly formed investment fund formed by GSR Ventures and Oak Investment Partners, with offices in Beijing, Hong Kong and Silicon Valley. In this acquisition, the fund defeated a consortium of US KKR and European private equity fund CVC Capital. On March 31 last year, Royal Philips of the Netherlands announced that the transaction was reached and only approved by the regulatory authorities.

The US Foreign Investment Review Committee has tightened its review of cross-border technology transactions for Chinese buyers in the past two years. Lumileds has several manufacturing and R&D facilities in the United States.

Accidental failure

The highly-accepted acquisition transaction unexpectedly fell short on January 22, and the banks involved in the related financing of 1.93 billion US dollars will not receive any dividends, which also reflects the regulatory uncertainty faced by Chinese overseas mergers and acquisitions.

As for the idea of ​​the US Foreign Investment Review Committee, it opposes the acquisition of about 80.1% of the shares of Philips Lumileds by Chinese capital, so that the loan participation is puzzling.

Loan professionals are surprised by this decision because the lighting industry is often seen as a relatively modest area that is almost incompatible with national security.

"I think this result is very surprising for both the lender and the related companies. After all, Lumileds is just a LED chip manufacturer," said a Chinese loan specialist familiar with the transaction process. "We have another M&A transactions, even if they are related to the military, have been released by the US."

The banker said that the bank received a fee due to the extension of the loan period. However, due to the cancellation of the loan, the bank did not receive front-end fees.

The financing agreement was signed in July last year, including Part A of the $1.33 billion seven-year term loan, Part B of the $250 million seven-year term loan and $350 million of five-year revolving credit. Only term loans are syndicated credits. The revenue from the term loan portion is 330 basis points over Libor and a front end fee of up to 90 basis points. The financing failed at a time when Chinese companies set off a wave of mergers and acquisitions overseas, creating opportunities for banks to lend. For example, the high-profile mergers and acquisitions of China National Chemical Corporation are expected to create many loan opportunities, although Chinese banks are expected to dominate.

Lumileds' loan case is a good example. The only bookkeeping and underwriting bank - Bank of China (3.220, 0.06, 1.90%) accounted for $1.61 billion, or about 83%, in a total of $1.93 billion in loans. Other participating banks include the China Export-Import Bank, which provides $120 million; Bank of Communications (5.350, 0.13, 2.49%) and the Dutch Cooperative Bank each provide $75 million, and Bank of America Merrill Lynch provides $50 million.

unknown reason

It is unclear for what reason the US Foreign Investment Review Committee (CFIUS) decided to use national security considerations to block Dutch companies from selling lighting to Asian investors. Goscale Capital, a Chinese private equity fund, beat global giants such as Bain Capital, CVC and KKR last May to buy an 80.1% stake in Lumileds for $2.8 billion. Go Scale's gold owners include Jinshajiang Venture Capital and Oak Investment.

The fact that Chinese companies are involved in investment teams, plus the fact that LEDs are semiconductors, may be part of the reason; the US sees the semiconductor industry as a major infrastructure. In the past, China’s acquisitions have also been blocked by US regulators. A more obvious example is CNOOC’s attempt to acquire Unocal for $18.5 billion in 2005, but the US regulator blocked two It is rare for a foreign company to transfer ownership. Philips said the company was not allowed to disclose CFIUS concerns.

China Enterprise Acquisition hopes to defeat foreign patent monopoly because of its emphasis on Lumileds patents

Lumileds is one of the traditional five major LED patent manufacturers, and the Philips Group has transferred more than 600 patents to Lumileds's transaction, so Lumileds has a large number of LED patents.

Lumileds. Philips will retain a 19.9% ​​stake in the company.

A person with a patent alliance said that the 600 patents transferred by Philips are still uncertain about the specific technology, but they are so "generous" to Chinese companies, definitely not because of their "decent", but only because of each other. The disparity in strength between them gives me some sweetness and makes a pit, not a threat to them.

Philips does not hesitate to transfer the patented technology. Of course, it may be just a "chicken rib" in their view. However, the situation in China is very different, because the current China is now and will be in the stage of market followers for a long time. Application technology, if no accidents will still be mainstream technology in the next few years, so the acquisition will be useful.


So, will this acquisition promote the patent sharing between Lumileds and Chinese companies? It is reported that at present, LED upstream core patent technology has long been mastered by the five international giants. Five major manufacturers form a monopoly through cross-licensing, and form a patent pressure on domestic LED manufacturers. If they can successfully acquire Philips, they can open up a new way for Chinese LED companies to break the monopoly of foreign patents, and hope to release and integrate domestic LED production capacity. Going abroad to connect with the international market. The international oligarchs that have signed a patent cross-licensing agreement with lumileds, such as Osram, Cree, Nichia, etc., may be greatly weakened or even disappeared.

"However, according to industry practice, since the transfer of patent rights includes various handovers, it takes a long time, not today's acquisition can be used tomorrow. Plus lumileds have changed hands more often, if it is used, the trouble will not be less Perhaps this is one of the reasons why Cree recently launched the 337 investigation.

According to the person in charge of the patent alliance, "In the field of LEDs, there are very few epoch-making inventions like Nakamura Shuji. They are all making local innovations. According to the industry this year, there are possibilities for new cutting-edge technologies, but the specific effects should be It’s a few years later.” She also reminded, “The new technology needs to be noted. If new technologies that can replace existing LED technology are developed, and we are not prepared, we will face another round of different technologies. Patent issue.