China approved a Chinese firm to acquire South Korean chipmaker Magnachip in late June, a week after the US government paused the acquisition for review and the South Korean government initiated a deal review. Wise Road Capital, a Beijing-based private equity firm, received approval from Chinese regulators to acquire Magnachip on June 21.
Why it matters: Magnachip is a world-leading manufacturer of driver chips in smartphone displays, producing circuits controlling other components like organic light-emitting diode (OLED) displays. The acquisition has raised concerns in South Korea that the country may lose its chipmaking advantage to China.
- China’s approval alone won’t close the deal, which needs approvals from the US and South Korean governments.
China’s approval: The antitrust bureau of China’s State Administration for Market Regulation said in a Wednesday statement (in Chinese) that it had “unconditionally approved” the deal between Wise Road Capital and Magnachip.
- China approved the deal on June 21, but only revealed it to the public on June 30.
- Magnachip announced in March that it would sell to Wise Road Capital for $1.4 billion.
US and South Korean reaction: The US blocked the deal on June 15. In South Korea, the deal was met with public pushback, prompting a review from the government.
- The Committee on Foreign Investment in the United States (CFIUS), a panel headed by the Secretary of Treasury and consists of nine other US cabinet members, blocked the deal on June 15 through an interim order. According to a June 17 filing by Magnachip, CFIUS also blocked Magnachip from delisting in the US stock market, which the Chinese firm reportedly said it planned to do after the acquisition.
- Magnachip is incorporated in Delaware, and listed on the New York Stock Exchange. Despite having little presence in the US market, Magnachip is considered a “US business” by US law. According to the Code of Federal Regulations, a “US business” refers to any entity engaged in interstate commerce in the United States, regardless of the nationality of the company or the person who controls it.
- On April 8, unionized workers of Magnachip staged a sit-in at the company’s campus in Gumi, South Korea, expressing opposition to the deal, according to local media Business Korea.
- On June 10, Business Korea reported that the Ministry of Trade, Industry and Energy of South Korea had proclaimed Magnachip as a “national core technology,” making the deal subject to the South Korean government’s approval.
Context: In 2004, Magnachip was spun off from South Korean memory semiconductor company SK Hynix and purchased by US firm Citi Venture. The company went public on the New York Stock Exchange in 2011.
- Despite being listed and incorporated in the US, Magnachip is based in South Korea. Most employees are South Korean, and most factories and offices are in South Korea, according to South Korean national news agency Yonhap (in Chinese). The agency added that it has always considered Magnachip a South Korean company.