US scraps Emcore deal over national security

By Stephanie Kirchgaessner in Washington

Published: June 30 2010 00:52 | Last updated: June 30 2010 00:52

The Obama administration has forced a US maker of fibre optics to abandon a planned joint venture with China’s Tangshan Caofeidian Investment Corporation because it believes the tie-up would threaten national security.

The decision by the White House to scupper the move represents the second time in less than a year that the administration has sought to block a transaction involving a Chinese company because of security concerns.

It also offers a rare glimpse into the administration’s handling of sensitive acquisitions following a drought in cross-border deals during the financial crisis.

Emcore, which is based in New Mexico and makes components for fibre optics and solar panels, said in a statement it had withdrawn a voluntary filing with the Committee on Foreign Investment (Cfius) after the executive branch panel said it had “regulatory concerns” over the venture.

Cfius, which is chaired by the Treasury department, conducts classified investigations of deals on national security grounds.

Although it rarely blocks transactions formally – it has done so only once – the panel alerts companies about a problem to allow them to drop merger plans voluntarily.

Under the terms of the deal, Emcore was set to sell 60 per cent of its fibre optics business to TCIC for $27.8m in cash. “While addressing any regulatory requirements, Emcore remains committed to seeking other means of co-operation,” the company said.

The Treasury department declined to comment.

Though the proposed deal was small, it will be studied in security circles.

Late last year, Washington forced another Chinese company to abandon a bid to buy a 51 per cent stake in FirstGold, a Nevada mining group.

The government told lawyers working on that deal it was concerned about the group’s proximity to a naval airbase. But one person familiar with the transaction said it was also worried about the Chinese company’s potential access to tungsten, a metal used in missiles.

The latest decision will also be watched by Huawei, the Chinese telecommunications equipment maker that was blocked from acquiring 3Com, a US technology group, by Cfius in 2008 and is seeking to make inroads in the US.