DISPUTE RESOLUTION AND COMMERCIAL LITIGATION

National Security reverse to proposed Chinese takeover of Newport Wafer Fab

On 16 November 2022, it was widely reported that Grant Shapps, Secretary of State, reversed the merger of Newport Wafer Fab by Nexperia, a Dutch company and subsidiary of Wingtech, a Shanghai registered company. The merger took place in July 2021.

Nexperia acquired an 86% stake in Newport on 5 July 2021. This took Nexperia’s stake in Newport to 100%.

A review was ordered by then Business Secretary Kwasi Kwarteng. Newport is the largest UK manufacturer of semi-conductors. Readers will be aware of recent US moves against China in the technology field and the CHIPs Act, designed to encourage their domestic semi-conductor industry. Increasingly, rightly or wrongly, China has been seen as a security threat to the US, UK and allied countries. Chinese involvement in the UK 5G network was criticised by many in the UK and US legislatures as well as security agencies, and was reversed.

On the specifics of the Newport takeover, the UK Commons Foreign Affairs Committee was scathing. It criticised the sale of ‘one of the UKs prized assets’ to a competitor and that the sale raised national security concerns.

Newport has announced it will appeal the decision. Toni Versluijs, head of UK Operations at Newport, stated:

“We are genuinely shocked. The decision is wrong, and we will appeal to overturn this divestment order to protect the over 500 jobs at Newport.”

The decision is disproportionate given the remedies Nexperia has proposed. It is wrong for the employees, for the UK semiconductor industry, for the UK economy and for the UK taxpayer – who could now be faced with a bill of over £100m for the fallout from this decision.We rescued an investment-starved company from collapse. We have repaid taxpayer loans, secured jobs, wages, bonuses and pensions and agreed to spend more than £80m on equipment upgrades. The deal was publicly welcomed by the Welsh government.”

The order was made on 16 November 2022 under the National Security and Investment Act 2021 section 26. The acquisition constituted a trigger event under section 8(2)(c) of that Act.

In its decision today the UK government identified two National Security Issues:

  1. the undermining of UK capabilities; and
  2. the threat to the creation of a tech hub in South Wales.

To quote the order of 16.11.2022:

5. The Secretary of State considers that a risk to national security relates to:
(i) 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

(ii) 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.

Newport now has 28 days under section 49 (4) of the Act to appeal.

Under the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) regulations 2021, 17 sectors are set out. These range from defence to energy and include transport and tech. If a target company deals in the UK in one of these sectors, then if more than 25/50 or 75% of the voting shares are acquired, this is a Trigger Event. This allows the UK Government to investigate, and reverse the acquisition.

In paragraph 6, the order has the effect of requiring Nexperia BV to sell at least 86% of NNL within a specified period and by following a specified process.

We will post an update with the grounds of appeal, and the result of that appeal, following the release of that information.

About the authors


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Jonathan Compton

Partner

Specialist in commercial disputes, banking and finance, regulatory and anti-trust/competition law.

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