Newport Wafer Fab: first NSIA “lookback” concludes in prohibition
The UK foreign investment saga involving the acquisition of the UK’s largest semiconductor manufacturer, Newport Wafer Fab (NWF), by China-backed Nexperia, has come to an end, with the Secretary of State blocking the transaction.
This long-awaited decision comes after the Secretary of State extended the initial review period by an additional 45 working days. This was followed by further (voluntary) extensions agreed with Nexperia. The case has spanned three UK Prime Ministers and three Secretaries of State.
A backdrop of national and international pressures
As discussed in our earlier post, the UK Government’s decision to “call in” the Newport Wafer Fab (NWF) deal for review represents the first public instance where the Government has used its retroactive powers under the National Security and Investment Act (NSIA) to review a transaction that closed before the new regime entered into force.
The decision to exercise its “lookback” powers follows a long saga of internal pressures. Starting on 14 July 2021, a report by the UK’s Foreign Affairs Committee (Committee) (discussed in an earlier post) stressed that the failure to conduct a detailed assessment of the NWF deal “would indicate that the Government […] is prioritising short-term commercial interests over the long-term security of our country”. Subsequently, in a 22 July 2021 letter, Committee Chair Kwasi Kwarteng reassured that “the Government has considered this issue thoroughly and will continue to monitor the situation closely”. However, in March 2022 (following a request from the then Prime Minister Boris Johnson) the Government’s national security adviser, Stephen Lovegrove, concluded that there were insufficient reasons to block the deal on specific security grounds, given the company’s outdated technology. The decision was widely criticised, including by a report on the takeover by the Committee, which stated that it had been forced to conclude that a review “ha[d] not, in fact, been started”, and it expressed concern “about the Government’s apparent lack of appetite to use the powers at its disposal to protect British companies in this industry”.
International pressures added to the political turmoil. On 19 April 2022, nine members of US Congress wrote to urge President Biden to “employ all necessary tools” to prevent the NWF transaction, including “engaging in direct diplomacy with the UK government” and even reconsidering the UK’s “whitelist” status as an exempted foreign state by CFIUS (the US foreign investment regime), were the UK to clear the acquisition (see our previous post).
The finale
The final order, which was published on 16 November 2022, concluded that: (i) the technology and know-how resulting from a potential reintroduction of compound semiconductor activities at the Newport site could undermine UK capabilities; and (ii) the location of the Newport site could facilitate access to technological expertise in the South Wales area and prevent that area being engaged in future projects relevant to national security. The final order requires Nexperia to sell at least 86% of NWF’s share capital, bringing Nexperia back to its previous holding of 14% that it owned when it took over NWF in 2021.
The decision illustrates the importance of the semiconductor industry to the UK’s national security and broader global interests, heightened international competition and the political perspective on the global semiconductor shortage. In culmination with domestic and international pressures following the call-in, it was clear that the case would be closely scrutinised. It is remarkable that the case does not relate to cutting edge technology (albeit there are also more advanced potential applications, such as defence radar systems); rather, NWF possesses primarily legacy technology. However, the decision evidences that semiconductors in general will continue to be an enforcement priority both in the UK and internationally. Notably, the NWF decision comes hot on the heels of two recent prohibitions in Germany, the sale of a German semiconductor plant to China-owned Silex Microsystems as well as a manufacturer of thermal wafer testing technology to a Chinese acquirer.
Moreover, it remains to be seen whether the UK Government will continue to use its “lookback” powers to scrutinise legacy transactions more widely.
