II-VI acquisition of Finisar challenges the Chinese government to approve

The management of II-VI recently decided to apply again to SAMR, the People's Republic of China Market Regulatory Authority, for its $3.2 billion acquisition of Finisar. The previous application has expired on August 17. The II-VI still hopes to complete the merger this fall. Previously, II-VI had denied that it would reapply.

In the earnings report of the previous few days, II-VI CEO Vincent D. (Chuck) Mattera said that considering the deep layout of II-VI and Finisar in mainland China and the third phase of the original M&A plan, they It is ready to re-initiate the application.

Although on the one hand waiting for the final approval of the Chinese government, II-VI has already made arrangements for the organizational structure after the merger. They will set up a new compound semiconductor division, and former II-VI CTO Giovanni Barbarossa will be the president of the new division. The division's businesses include large bandgap semiconductors, infrared optics, advanced materials, laser devices and systems, aerospace and defense. We are familiar with the high-profile Sun Chaoyang Sun will be the president of II-VI photonics business solutions.

The merger between the two foreign companies requires the approval of the Ministry of Commerce of the People's Republic of China. This is because according to China's Anti-Monopoly Law and related regulations, the concentration of operators is as long as the global annual turnover exceeds 10 billion RMB, and at least two operators In the previous year, the turnover in China exceeded RMB 400 million, so it should be reported to the Ministry of Commerce of China for anti-monopoly review. The II-VI and Finisar companies have more than 12,000 employees in mainland China, and the customer list is very long. Obviously the Chinese government needs to review.

Will there be any cases in which the Chinese government does not approve it? There was no precedent before. The case of Qualcomm’s acquisition of NXP, which triggered an uproar in the semiconductor industry, was abandoned last year because the Chinese government did not pass. From the initial setting of April 25, all the way to July 25, three applications, the Chinese government did not release. In addition to China, eight other antitrust market regulators around the world have approved mergers and acquisitions. II-VI and Finisar certainly do not have the same influence as Qualcomm and NXP, but given the current environment of Sino-US trade wars, the Chinese government does have reason to slow down the pace of approval. In the editor's view, the impact of the merger of II-VI and Finisar may not be focused on the field of optical communications, in the field of mobile phones, driverless, and new optical materials. Finisar's optical module business is already a red sea after all.

If the Chinese government does not release, will II-VI and Finisar force mergers and acquisitions? In theory, it is still possible, but it means that the other party gives up the Chinese market. This situation should not occur. There is a saying that the interest in Finisar in II-VI is not as great as it was at the beginning. Will it be terminated by the Chinese government's non-release? This possibility is still to be observed.