Tsinghua Unigroup, a state-backed investment vehicle affiliated with Tsinghua University in Beijing, could face significant headwinds in its attempt to acquire US-listed memory chip maker Micron Technology.
According to a Wall Street Journal report citing sources familiar with the matter, Tsinghua Unigroup has prepared a $23 billion bid to buy Micron.
If the deal goes through it will be the largest overseas acquisition by a Chinese company, exceeding Cnooc's record $15.1 billion purchase of Canada's Nexen in 2013.
An employee at Tsinghua Unigroup told FinanceAsia she could not speak about the deal as it hasn't been settled yet.
Tech bankers say Tsinghua's investment arm has managed to successfully close deals without the aid of outside investment bank advisers. In May, a Tsinghua unit agreed to buy US tech giant Hewlett Packard’s 51% stake in H3C Technologies for $2.3 billion.
“Tsinghua has got an excellent track record of getting acquisitions done so far and a strong desire to do deals," said a Hong Kong-based tech banker.
In the past five years Tsinghua has only used outside advisers once, according to data provider Dealogic, namely the 2013 acquisition of US-listed Spreadtrum Communications, for which it retained Credit Suisse and Deutsche Bank.
Shifting trade and political winds have created conditions favourable to certain deals. Hewlett Packard, for instance, was motivated to sell its 51% stake in H3C Technologies to a Chinese bidder given China's ongoing crackdown on US tech firms in mainland China.
Idaho-headquartered Micron won't necessarily be subject to the same circumstances, but given the heft of the deal, it will likely encounter political headwinds when it comes before the Committee on Foreign Investment in the United States. In 2008, the congressional committee voted down Huawei and Bain Capital's acquisition of 3Com.
“Tsinghua will face key issues such as US national security and anti-trust issues and also, how the Micron board will react,” said a Hong Kong-based M&A lawyer.
In their overseas aquisition programmes Chinese companies have tended to target US-listed firms with management teams they perceive as being friendlier to Chinese ownership. Spreadtrum Communications, a Shanghai-based mobile phone chip designer bought by Tsinghua in 2013, is a classic example.
That said, Tsinghua Unigroup has a major US tech brand as an investor. Intel invested $1.5 billion in Tsinghua Unigroup in September 2014 and the US chip giant could potentially help the state-backed investment vehicle navigate the politicised landscape.
More conventional sticking points such as pricing may also threaten to derail the deal. According to the report, the bid represents $21 per share and while this is a 19.3% premium on Micron’s closing price on Monday, it is well off the $36.49 per share cost of Micron on December 5.
In a consolidating market, bankers say Tsinghua could face rivals for the chipmaker.
“Micron is a company that has been looked at as an M&A target,” said the second tech banker. “I wouldn’t be surprised if there’s competition for this asset," he added.
If it goes through, the acquisition of Micron, a major player providing the memory that goes into smartphones and tablets, will certainly help Tsinghua leapfrog onto the global stage.
“There are only three big players -- Micron, SK Hynix and Samsung -- so if they buy it, Tsinghua will rocket into the top three for players in the memory space,” the second tech banker said.
Tsinghua is an example of a growing breed of hitherto little-known companies that have turned into prolific dealmakers. In addition to Spreadtrum and H3C, Tsinghua paid $910 million to buy cellphone chipmaker RDA in late 2013.
As China has made a concerted push into building up its semiconductor presence, the company that is run by chairman Zhao Weiguo is fast emerging as the poster child for the country's tech ambitions. To support companies seeking to make investments within the semiconductor space, the Chinese government last year set up an Rmb120 billion ($19.6 billion) fund.
Tsinghua Unigroup has deep pockets thanks to state support. Earlier this year it said it will receive Rmb30 billion ($4.8 billion) in funding over the next five years from policy lender China Development Bank and the National Integrated Circuit Industry Investment Fund, a government-backed vehicle.
A Micron spokesman said the company does not comment on rumour or speculation.
(With additional reporting by Julie Zhu)