FDI screening killed at least 20 mergers globally totaling over USD 6bn in 2022

Data Insight 20 January

FDI screening killed at least 20 mergers globally totaling over USD 6bn in 2022

At least 20 mergers were blocked or abandoned in 2022 due to national security or foreign direct investment (FDI) screening across the world last year, according to an analysis by this news service.

The number was up from eight counted by this news service in 2021, indicating Western governments in particular are strengthening their application of FDI screening tools.

The combined value of the deals blocked totalled USD 6bn according to Dealogic data, with the majority made up by Taiwanese GlobalWafers’ [TT:6488] lapsed USD 5.2bn offer for German Siltronic AG [ETR:WAF].

 Five jurisdictions were responsible for all 20 failed deals: the UK (six), Germany (five), Canada, Italy and the US (all three). These five governments can indeed be considered the most vigilant on acquisitions of critical companies in the past years, having all stepped up enforcement.

The analysis is based on government and company announcements, as well as press reports. It excludes all deals that received approval – including Chinese acquisitions and semiconductor deals – as well as those cleared with mitigation measures. Due to the secretive nature of national security reviews, it is possible other deals not included in the analysis failed due to FDI screening which have not been made public.

Bidder nationality in 80% of the blocked deals was China, Hong Kong, or Europe-based (Netherlands, Sweden, UK) subsidiaries of Chinese-owned companies. Other buyers were based in Luxembourg, Russia, South Korea and Switzerland.

This should come as no surprise, as FDI screening and rhetoric around it has targeted Chinese acquisitions in the past years.

Attention has also been on the semiconductor industry, which accounted for 25% of the blocked and abandoned acquisitions. Energy (three), mining (three) and medical (two) sector deals were also in scope. The increasing importance of metals used in batteries came to the forefront when Canada’s government ordered the sale of three lithium mining firms owned by Chinese companies, a few weeks after it announced the inclusion of critical minerals in its national security screening regime.

Eight of the 20 deals concerned a completed takeover that was called in for review by a government.

Three of the deals were abandoned last year because they could not obtain national security approval, with the most prominent being Siltronic/GlobalWafers after it failed to get German clearance on time. Viston United Swiss abandoned its proposed takeover of Petroteq Energy [TSX.V:PQE] following concerns by the Committee on Foreign Investment in the US (CFIUS), and the acquisition of graphene maker Perpetuus Group by a Chinese individual was dropped after the UK government sought an in-depth probe.

The other nine mergers were on ongoing transactions, including a partial approval of Cosco Shipping’s [HKEX:1199] acquisition of Hamburger Hafen und Logistik AG (HHLA)[ETR: HHFA] by Germany’s cabinet. The government blocked the acquisition of a 35% stake and limited the purchase to 25%.

As FDI screening grows in prominence across different jurisdictions, it could be expected more deals will stumble on governments’ security concerns, with focus points on chips, critical minerals, energy and biotech. Governments in other jurisdictions than those named in the analysis could also show more enforcement. For instance, South Korea’s Ministry of Trade, Industry and Energy unexpectedly called in Xi’an Focuslight Technologies' [STAR: 688167] USD 50.95m bid for display panel repair equipment maker Cowin DST, which was announced on 9 September, and it is now reviewing the deal.

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