Whither Xcerra?

Trade tensions between the People’s Republic of China and the Trump Administration could sink a big transaction in the automatic test equipment business.

Xcerra, a supplier of semiconductor test systems, board testers, and electronic interconnects, announced in April that it had accepted an offer from Unic Capital Management, an affiliate of Sino IC Capital, to acquire the company for $10.25 a share in cash, a deal worth about $580 million. The parties plan to close the transaction by the end of 2017.

The Wall Street Journal reported a few weeks ago that Cohu, a vendor of semiconductor test and inspection handlers, microelectromechanical system test modules, test contactors, and thermal subsystems, had raised objections to the proposed Xcerra acquisition with the Committee on Foreign Investment in the United States (CFIUS), a federal interagency panel that is charged with reviewing the transaction. Cohu alleges that U.S. national security could be compromised if Xcerra is sold to Sino IC Capital, which has ties to China’s government.

Xcerra denies there are any potential issues regarding intellectual property and national security, saying in an email to Reuters, “The allegations Cohu makes are false, as Xcerra does not possess critical IP from any customer. Semiconductor companies do not share their critical information with automatic test or handler vendors.”

The acquisition remains in the hands of CFIUS, which has declined to approve the $1.3 billion acquisition of Lattice Semiconductor to Canyon Bridge Capital Partners, a private equity buyout firm that also is connected to the PRC’s government. That deal has been submitted to President Donald Trump for approval or rejection.

Xcerra’s stock price was below $10 a share last week, reflecting investor uneasiness about the acquisition going forward.

Before the acquisition agreement was disclosed, Xcerra announced that it was setting up direct sales and support for its chip testing equipment in China and Taiwan, establishing the Xcerra Development Centers in Shanghai, China, and Zhubei, Taiwan.

For all the fuss about the acquisition, Xcerra is on solid financial footing. For the fiscal year ended July 31, it reported net income of $22.555 million on revenue of $390.77 million, compared with net of $11.17 million on revenue of $324.2 million for the previous fiscal year. The company increased its cash and cash equivalents from $83.06 million to $103.64 million over 12 months.

Will CFIUS give the green light to Xcerra’s acquisition? Stay tuned.