Limits Urged on Foreign Stakes in U.S. High-Tech : Buyouts: The opponents of restrictions fear they would stem the flow of much-needed capital while undermining efforts to open up overseas markets.
In Washington and in Silicon Valley, efforts to limit foreign buyouts of American technology companies are gaining momentum.
In Washington, congressional Democrats are trying to renew and strengthen existing procedures for reviewing takeovers of high-tech firms by foreign companies. That effort comes in the wake of the Gulf War, which highlighted America’s dependence on overseas suppliers for some critical technologies.
And in Silicon Valley, where opinions vary widely on the need to limit such transactions, Intel Chief Executive Andrew S. Grove has stepped to the forefront in advocating the outright prohibition of certain types of foreign buyouts.
Whether these efforts can achieve success--when previous efforts have failed--remains a big question. Critics in the industry and the Bush Administration say limits on foreign investment would stem the flow of much-needed foreign capital into the United States while undermining U.S. efforts to open up foreign markets.
But Grove charges that acquisitions of small but technology-rich American companies are part of a broader strategy by Japanese firms to achieve domination in certain critical technologies. In recent years, Japanese companies have been very active in buying or making major investments in specialized computer chip companies, chip-making equipment and materials companies, and machine tool companies.
According to the American Electronics Assn.’s Japan office, there have been 153 Japanese acquisitions of partial or full stakes in American electronics firms since 1986.
The battle in Washington pits Democrats who favor government efforts to bolster America’s technological competitiveness against the Bush Administration, which has adamantly opposed any kind of industrial policy for high technology. The Administration has come under fire for not acting to block several recent transactions, including the purchase of Semi-Gas, a vendor of gas-handling gear for chip factories, and Moore Special Tool Co., a producer of sophisticated machine tools.
A 1988 law known as the Exon-Florio amendment, which recently lapsed, calls for any transaction that might have national security implications to be reviewed by the interagency Committee on Foreign Investment in the United States (CFIUS). The law also gives the President explicit authority to block takeovers for national security reasons.
Of more than 500 deals reviewed by CFIUS, however, only one transaction--involving a Chinese company--has been blocked. Congressional Democrats, led by Rep. Mel Levine (D-Santa Monica), accuse the Bush Administration of standing idle while critical technologies are sold to overseas competitors.
“Blocking sales out of fear and prejudice is clearly wrong,” but acting to protect America’s competitiveness in technology “is just common sense,” Levine says. Economic and technological vitality is a key component of national security, he said.
Later this month, Levine plans to introduce legislation that would strengthen the Exon-Florio amendment by broadening the definition of national security to include economic security and particularly America’s capabilities in certain “critical technologies.”
In addition, Levine’s bill would shift leadership of CFIUS to the Commerce Department from the Treasury Department--which is considered to have a conflict of interest because it must sell bonds to foreign banks. The bill would also authorize CFIUS to investigate not only outright takeovers but also equity investments of more than 10%, improve data collection on foreign investments and require CFIUS to submit confidential reports on its investigations to Congress.
Other members of Congress, including Sen. J. James Exon (D-Neb.), are simply seeking to have Exon-Florio made into a permanent law rather than one that must be renewed every two years. Exon maintains that the legislation is sound but that the Administration is not using its discretionary authority in the way the law directs.
Indeed, even Levine’s new legislation stops well short of mandating specific restrictions on foreign takeovers, instead leaving it to presidential discretion to prevent certain sales. A bill calling for an outright ban on any kind of takeovers would stand no chance of being enacted, he said.
Grove of Intel, however, doesn’t face the same political practicalities, and in a recent speech he called for a prohibition on certain kinds of buyouts. Specifically, he said, foreign companies should not be able to buy firms whose technology was developed with U.S. government funds. And, he said, all acquisitions should be subject to a “technological impact study” and rejected if they would have an adverse impact on America’s competitiveness vis-a-vis the nation of the acquiring company.
He also pointed out that Japan and many other countries impose substantial restrictions on foreign investment and thus reciprocity should be a criterion in approving transactions.
“I want government to take responsibility for critical technologies,” said Grove, who has long warned that continued inaction on trade and related competitiveness issues would render the United States a “technological colony” of Japan.
Yet many in the industry agree with the Administration’s position that limiting foreign investment would only cut off the flow of much-needed capital into the United States and undermine American efforts to persuade other countries to liberalize their investment policies.
“We feel the current approach is adequate for its purpose, and we don’t see the value of new legislation,” said Jim Whittaker, international public policy manager for Hewlett-Packard. “Foreign capital is important to the United States; it often brings jobs here. And we have investments abroad, and (stricter legislation) could reduce our ability to get rid of barriers overseas.”
The small technology companies that sell all or part of their stock to foreign firms often say they have no choice because American companies are unwilling to make investments in technologies that may not have an immediate payoff. In the case of Moore Special Tool, for example, the company faced bankruptcy without the proposed investment from Japanese robot vendor Fanuc.
Grove acknowledged that restrictions would be “against the interests of a lot of people,” and therefore a united industry position on the issue is not likely to emerge. “If you look to industry, it won’t happen. But it’s absolutely a place for government leadership.”
Levine said he’s “cautiously optimistic” about the chances for his bill, which he hopes will serve to pressure the Administration into action and possibly force the participants in a given transaction to make certain commitments--such as keeping research and development operations here--that would mitigate the worst effects of a foreign takeover.
BUYING IN
A sampling of Japanese acquisitions of American electronics firms since 1986:
Acquiring company Acquired company Equity Asahi Corp. PhoneMate Inc. 100% Canon Next Inc. $100 million Kubota Co. Mips Computer Systems 17.8% Kyocera Elco Corp. $250 million Kyocera AVX 100% Matsushita National Semiconductor chip plant 100% Mitsui & Co. Unisys $150 million Nippon Sanso SemiGas 100% Pioneer Electronics Discovision $200 million TDK Silicon Systems $200 million
Source: American Electronics Assn. Tokyo office
