UK to review Chinese takeover of semiconductor plant

The UK government has called in the acquisition of the country’s largest semiconductor plant by a Chinese company in a significant shift in approach to foreign takeovers.

Kwasi Kwarteng, the business secretary, said on Wednesday the takeover last year of Newport Wafer Fab by Nexperia — a Dutch subsidiary of Chinese company Wingtech — would face a review under the new National Security and Investment (NSI) act.

“We welcome overseas investment, but it must not threaten Britain’s national security,” Kwarteng said.

The NSI act, which came into force on January 4 this year, allows greater scrutiny of foreign takeovers of companies in sensitive industries. Kwarteng’s intervention comes at a time of deteriorating relations between China and the west.

The NSI gives the business secretary the power to block the deal on national security grounds. He has 30 working days from Wednesday to make the decision, although that can be extended by up to 45 further working days.

In March, the government’s national security adviser, Stephen Lovegrove, concluded that there were insufficient reasons to block the deal on specific security grounds, given the company’s outdated technology, after UK prime minister Boris Johnson asked him to review the deal.

But Ciaran Martin, former head of the National Cyber Security Centre, has expressed “very real concerns” about the buyout.

Other senior figures in the government had also warned that the sale of Newport Wafer Fab, which produces silicon wafers at its plant in south Wales, to a Chinese buyer would undermine one of the country’s strategic industries.

Kwarteng’s decision was hailed by Tom Tugendhat, Tory chair of the foreign affairs select committee, who said: “We need to maintain a base to build on to ensure the UK is resilient. This isn’t just about security today but independence tomorrow. Good decision.”

Newport Wafer Fab is one of the four main companies that make up the Welsh semiconductor “cluster”, alongside IQE, SPTS Technologies and Microchip — making components for electric vehicles and smartphones.

The cluster is estimated to generate more than £600mn in revenue every year and employ over 2,000 people.

Officials have also been nervous about the global shortage of microchips and the fact that Russia’s invasion of Ukraine has highlighted the need to support critical domestic industries.

The government is separately worried about the future of Arm Holdings, a Cambridge-based semiconductor and software design company, which looks likely to float on the New York stock exchange.

SoftBank, the Japanese owner of Arm, had sought to sell it to Nvidia of the US only to abandon the deal in the face of regulatory opposition. Johnson has intervened to try to persuade the company to list Arm in London instead.

Since Johnson became prime minister in 2019 the government has reversed plans to allow Chinese telecoms equipment maker Huawei to supply kit for Britain’s 5G phone networks. He has also intervened to block an investor linked to Beijing from taking control of the board of Imagination Technologies, a British chip designer.

Newport is not the first deal to be called in under the NSI act but it is the first to be made public, according to government officials. The takeover by Nexperia was completed in July last year.

Nexperia said in a statement: “We have been informed of the secretary of state’s decision. We welcome this opportunity to engage and contribute to an informed debate about our UK activities and investment plans.”

Additional reporting by Tim Bradshaw

Source: Financial Times