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Lattice defends its $1.3 billion sale

Deal to firm with ties to China raises security concerns

By Mike Rogoway, The Oregonian
Published: December 2, 2016, 6:05am

Portland — Lattice Semiconductor is defending its pending, $1.3 billion sale to a Chinese-backed investment firm, maintaining it’s a good deal for shareholders and employees.

A Wednesday proxy filing detailed for the first time a 15-month courtship by a number of suitors, including several based in China. Portland-based Lattice ultimately agreed to sell to a little-known private equity firm, Canyon Bridge Capital Partners, which is backed by a Chinese investment fund.

Those ties threaten to run afoul of federal regulators who guard against transactions that could endanger national security, potentially scuttling the deal. The election of Donald Trump added complexity to the agreement as investors weigh the possibility the incoming president might take a critical view of Chinese ownership of a U.S. technology company.

Lattice’s shares closed Wednesday at $7.01, well below Canyon Bridge’s $8.30 offer price.

Doug Hunter, Lattice marketing director, on Wednesday acknowledged investor skepticism but said the Portland company went into the deal knowing the risks.

“Absolutely there’s concern about China, and absolutely there’s concern about Trump,” Hunter said. “We have not seen any news that was new to us or changed the direction going forward with this deal.”

Lattice makes a class of computer chip called a field programmable gate array. The Portland company, No. 3 in its market, has been a persistent source of takeover speculation.

In Portland, Hunter said, “there were sighs of relief from employees” at the prospect of an investment firm buying Lattice instead of selling to a rival who might have dismantled the company.

“We don’t anticipate moving any jobs from the U.S.,” said Gloria Zabel, Lattice chief of staff.

Lattice employed 1,146 worldwide at the start of the year. Historically, about 200 of those have worked in Oregon.

Canyon Bridge has not said why it wants to buy Lattice, but Susquehanna Financial Group analyst Christopher Rolland believes Chinese investors may be trying to fill the production lines of a Shanghai company, Semiconductor Manufacturing International Corp.

Lattice first received overtures from an unspecified “China-based financial sponsor” in May 2015, according to Wednesday’s proxy filing. In the ensuing months, several other Chinese investors expressed interest and Lattice shopped itself to other possible buyers — including multiple companies in the U.S.

At least a couple expressed interest in buying Lattice, according to the proxy. But one offered “significantly” less than Canyon Bridge, and another bid came too late.

Wednesday’s filing does indicate that Lattice was acutely aware that any deal with China would have to pass muster with the Committee on Foreign Investment in the United States, a federal interagency panel that reviews and can block transactions in which U.S. businesses or assets could fall under foreign control.

A year ago, in fact, when Lattice was considering overtures from several suitors, the proxy indicates that chief executive Darin Billerbeck told the board “Lattice would seek a meaningful reverse termination fee payable in the event CFIUS approval was not obtained.”

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