Doubts surround Micron Technology buyout

Micron Technology’s stock jumped earlier this week amid reports that the state-owned Tsinghua Unigroup was planning a buyout offer, as investors clamored for a slice of what would be the biggest acquisition of a U.S. company by Chinese buyers.

But doubts about a deal emerged quickly. Analysts say that the $23 billion offer is almost certainly too low for the company to take seriously, while legal experts say that regulators would give intense scrutiny to a deal that would give the Chinese government control of the United States’ only large maker of memory chips used in computers.

Tsinghua, the investment arm of a Chinese university, is planning to make an offer to buy Boise, Idaho-based Micron at $21 a share, according to media reports. If it were approved, the deal would easily eclipse the 2013 acquisition of Smithfield Foods by a Chinese conglomerate for $4.7 billion to become the largest acquisition of a U.S.-based firm by a Chinese company.

But the price “is quite a low-ball offer,” said Betsy Van Hees, an analyst at Wedbush Securities who follows the semiconductor industry. “It was very much a bargain basement. I doubt that the board of directors, let alone shareholders, would even consider that as a reasonable offer.”

Micron didn’t respond to multiple requests for comment, but in an interview with Bloomberg News, Tsinghua Chairman Zhao Weiguo said, “We are very interested in cooperation with Micron.”

Micron is a giant in an industry dominated by a handful of players. Memory chips have become something approaching a commodity and are embedded in smartphones, laptops and myriad other devices.

But even as they have proliferated, they remain difficult to make and expensive to develop. China, which doesn’t have a major producer, wants to make its own.

Analysts say that Tsinghua’s chance of buying Micron for $21 a share is a long shot. The company’s stock was trading above that level until last month, when a weak quarterly earnings report sent its shares tumbling. It closed at $17.61 a share Monday before the news broke, half of its value at the start of the year.

Micron shares jumped at the news, rising above $19.50, but slumped Wednesday below $19.

If a deal with Tsinghua emerged, it would be scrutinized heavily by federal regulators.

The acquisition would have to be approved by the Committee on Foreign Investment in the United States, which reviews transactions involving foreign buyers and weighs what effect they could have on national security. CFIUS has dealt increasingly with acquisitions that involve China or that have cybersecurity implications.

The panel was created decades ago with military concerns in mind, but what national security encompasses has swelled, growing to include industries such tech and telecommunications that are key to the U.S. economy.

In 2013, 21 of the 97 deals CFIUS considered involved Chinese buyers, the most of any country, and 12 involved computer or electronics makers, more than other type of manufacturers, according to its latest annual report.

“It appears to have all the hallmarks of a deal that CFIUS, if it went forward, would like to see, which is it involves China, foreign government control and U.S. high tech,” said Anne Salladin, special counsel at Stroock & Stroock & Lavan who for years advised the chairman of CFIUS on legal issues.

The group can block transactions or demand changes to limit their impact on national security, but it does so relatively infrequently. Only about a tenth of the deals it reviewed in 2013 were altered, and only one case has been rejected outright during the Obama administration. (Other deals were pulled before reaching that point.)

The key question, CFIUS followers say, would be how the U.S. government, particularly the military, uses Micron’s chips and whether it could find alternatives if needed.