On September 13, 2017, President Donald Trump issued an order prohibiting the $1.3 billion acquisition of Lattice Semiconductor Corporation (“Lattice”) by Canyon Bridge Fund I and its Chinese venture capital fund partner, Yitai Capital Limited (“Yitai”), and Yitai’s parent, China Venture Capital Fund Corporation Limited (“CVCF”). CVCF is a Chinese state-owned fund created in 2016 to invest more than $30 billion. Based on a recommendation from the Committee on Foreign Investment in the United States (“CFIUS”), President Trump’s order marks just the fourth time in 30 years that a US president has blocked the foreign acquisition of a US company due to the national security risks involved.

Lattice, which is based in Portland, Oregon, is a publicly traded semiconductor company that focuses on field programmable gate arrays—general purpose products that can be programmed by customers for specific uses. Following the president’s order, the Treasury Department confirmed that the national security risks posed by the transaction included “the potential transfer of intellectual property to the foreign acquirer, the Chinese government's role in supporting this transaction, the importance of semiconductor supply chain integrity to the U.S. government, and the use of Lattice products by the U.S. government.”

Reportedly, the parties withdrew and re-filed their notice to CFIUS three times to try to win approval from the committee. While re-filings are common in very complicated or controversial transactions, re-filing a notice three times is highly unusual.

In most situations in which CFIUS moves to recommend that a transaction be blocked, the parties withdraw their application and abandon the transaction rather than face a public rejection by the president. Lattice, however, publicly appealed to the president, arguing that completing the acquisition would save jobs, even after the CFIUS recommendation around the end of August that the deal be blocked.

The president’s order comes amid increased scrutiny by CFIUS of transactions generally and specifically of those involving Chinese parties. CFIUS, an interagency panel that includes the secretaries of Treasury, State, Homeland Security, Commerce, Defense, and Energy, as well as the attorney general and certain White House officials, is particularly focused on Chinese access to US semiconductor technology and the potential ramifications for US national security.

At least two other transactions involving Chinese parties have been abandoned this year following concerns by CFIUS: a Chinese airline’s proposed $416 million investment in Global Eagle Entertainment Inc. (an in-flight entertainment services company), and Inseego Corp.’s proposed $50 million sale of Novatel Wireless, Inc. and its MiFi and modem businesses to T.C.L. Industries Holdings Limited and Jade Ocean Group Limited.

Potential investors and sellers should take note of the president’s decision and of the intense scrutiny of foreign investment in the United States that touch on national security broadly conceived. They should carefully assess their risks and determine whether a CFIUS filing or informal outreach to CFIUS is warranted for a potential transaction. We also recommend that parties consider CFIUS and national security risks early in a transaction and take steps to structure and define a transaction in ways that could enhance the prospects of CFIUS approval.