Unwound: UK government orders reversal of semiconductor deal on national security grounds

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The UK government has exercised its powers under the UK’s national security and investment regime to unwind Chinese-owned Nexperia’s acquisition of Newport Wafer Fab (“NWF”), a semiconductor wafer factory located in Newport, Wales. This is the third prohibition under this (new) regime and the first transaction to be unwound.

Nexperia’s purchase of an 86% shareholding interest in NWF (taking its shareholding to 100%) closed in July 2021. The Prime Minister at the time responded to political pressure by asking the National Security Advisor to probe the takeover. No decision was taken until 25 May 2022 when the deal was called in by the Secretary of State for Business, Energy and Industrial Strategy (“BEIS”) for national security assessment using powers under the National Security and Investment Act 2021 (the “Act”), which came into force in January 2022. Under the Act, the Secretary of State can call in a transaction if they reasonably suspect that a “trigger event” has taken place in relation to a “qualifying entity” (or “qualifying asset”), and the event has given rise to, or may give rise to, a risk to national security.

The Act confers on the government broad powers to intervene if it considers that a transaction gives rise to a risk to national security. Following its review, the government published a Notice on 16 November 2022 confirming that the Secretary of State had made a Final Order requiring Nexperia to divest at least the 86% shareholding interest it acquired in NWF in July 2021 within a specified period (the duration of which has not been published).

The Secretary of State considers there to be two risks to national security arising from the deal:

  • technology and know-how that could result from a potential reintroduction of compound semiconductor activities at the Newport site, and the potential for those activities to undermine UK capabilities; and
  • the location of the site could facilitate access to technological expertise and know-how in the South Wales Cluster (“the Cluster”), and the links between the site and the Cluster may prevent the Cluster being engaged in future projects relevant to national security.”

The first risk highlights that the possibility of reintroduction of sensitive activities can raise national security concerns. The second risk shows that proximity or access to sensitive areas or sensitive supply chains also can raise such concerns. These types of risks – potential reintroduction of an activity and the location of a site - could apply to a large number of transactions.

All of the prohibitions issued under the Act to date have related to transactions in the technology sector. The first prohibition concerned the licensing of know-how related to SCAMP-5 and SCAMP-7 vision sensing technology owned by Manchester University, and the second concerned the acquisition of Pulsic Ltd, a company specialising in integrated circuit design software, by Super Orange HK Holding Ltd. The government has imposed conditions by way of Final Order on a further seven transactions.

The Investment Security Unit, the unit within BEIS that enforces the Act, not only relies on notifications by parties: it also monitors the news and other media for M&A activity and on its own initiative issues requests for information (or “Information Notices”) to transaction parties to determine if a transaction warrants a national security assessment.

Nexperia, headquartered in the Netherlands and owned by Wingtech Technology (China), has announced that it intends to appeal the government’s decision.