Korean semiconductor outfit Magnachip no longer merging with Chinese private equity Wise Road Capital

Wanna play on a US stock exchange? You'll need US regulators on side

South Korean semiconductor company Magnachip has terminated its planned merger with Chinese private equity firm Wise Road Capital.

The move comes months after the Committee on Foreign Investment in the United States (CFIUS) refused to approve the deal.

A joint statement from the firms released on Monday said termination of the agreement was due to "the inability of the parties, despite months of effort, to obtain CFIUS's approval for the merger."

The tie-up was announced on 29 March, with expected completion in the second half of 2021 pending regulatory and board approvals. Since Magnachip is listed on the New York Stock Exchange, it meant that the deal was subject to US approval, in addition to Beijing and South Korea.

Unfortunately for MagnaChip and Wise Road Capital, CFIUS withheld approval of the $1.4bn deal through an interim order in June on the grounds that the merger was a national security threat. The regulatory body considered Magnachip's tech a "national core technology."

Magnachip describes itself as a "designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, industrial and automotive applications," with a "portfolio of approximately 1,200 registered patents and pending applications."

Unfortunately for Wise Road Capital, it now must pay a $70.2m termination fee to Magnachip. $51m will be paid promptly and $19.2m will be deferred up to 31 March 2022.

Magnachip also filed a responding Form 8K with more details, as required by US-listing companies when events of importance to shareholders or the Securities and Exchange Commission (SEC) take place.

Chinese media made hay. In September, state-sponsored news outlet Global Times called the US "callous" for blocking deals between China and South Korea and that for this particular case, "US regulatory intervention doesn't hold water at all."

When it comes to blacklisting and blocking Chinese companies over national security concerns, the US is just getting started. The Financial Times reported today that the US Treasury Department would add eight more firms to a 60-strong blacklist of Chinese companies dealing in the Middle Kingdom's military industrial complex.

Chinese AI startup SenseTime Group was also recently placed on the US investment blacklist, forcing it to postpone a Hong Kong IPO.

"We strongly oppose the designation and accusations that have been made in connection with it. The accusations are unfounded and reflect a fundamental misperception of our company. We regret to have been caught in the middle of geopolitical tension," wrote SenseTime in a statement.

The US Treasury blacklist is in response to China's surveillance and treatment of the Uyghur population, an ethnic Muslim minority within the Middle Kingdom. ®

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