After the negative review from a United States security panel, Infineon’s deal for a major Cree business seemed shaky. But both companies vowed to return to the drawing board and figure out a deal that would stand regulatory muster.
On Thursday, it became clear that they ran out of ideas.
Cree said that it had terminated the sale of its Wolfspeed unit, which makes radio frequency and power chips based on gallium nitride, a material considered vital for military radar and satellite systems.
“We are disappointed that the Wolfspeed sale to Infineon could not be completed,” said Chuck Swoboda, Cree’s chief executive, in a statement. Last year, the company canceled plans to spin off the business after Infineon, which is based in Neubiberg, Germany, inquired about an acquisition. The sale came out to $850 million.
The deal started foundering a little over a week ago, when the Committee on Foreign Investment in the United States, an agency that weighs the national security impact of foreign offers for American businesses, refused to give the deal its blessing. Its reviews are often enough to make companies pull out of proposed deals.
After the ruling, both companies said that there was a significant risk of the deal not going forward, but they were talking with the agency, more commonly known as Cfius, about how to make the deal more palatable. Cfius didn’t have any advice, the companies announced.
The agency does not make its concerns public, but one possibility is that it was worried about losing Wolfspeed’s expertise in layering gallium nitride on wafers of another advanced material, called silicon carbide, to a foreign firm. The chips handle higher voltages, switch at faster speeds, and tolerate more heat than silicon in things like antiballistic missile radar.
Other forms of gallium nitride are also used in light-emitting diodes and lidar systems vital for autonomous driving. The technology has been at the center of several other deals that Cfius has blocked in recent years, though most of those have involved offers from Chinese investors.
Adding to the complexity of the deal, Wolfspeed is a major supplier of gallium nitride to the Department of Defense. The company also sells chips based on silicon carbide, which is considered less sensitive than gallium nitride, as it is used primarily in power electronics and lighting.
Under chief executive Reinhard Ploss, Infineon is betting that these compound semiconductors will replace silicon in a new generation of chips. Wolfspeed would have given the German chipmaker a wide array of the small and power-efficient devices already making an impact in things like electric cars and charging stations.
Infineon is one of the biggest suppliers of power electronics, particularly for automotive applications. The company hinted in its announcement of the Wolfspeed deal that it had focused more on the commercial uses of gallium nitride, not so much the military applications.
At Infineon’s annual shareholder meeting on Thursday, the company already seemed resigned to the failure of the deal. "We are in discussions with Cree about what could work to address the issues of CFIUS. But we think that this will be very unlikely," said Helmut Gassels, one of Infineon’s board members, according to Reuters.
Wolfspeed will apparently start working like it did before the deal. It will be folded into Cree, which was trying to straighten out its main business of light-emitting diodes by selling Wolfspeed. Infineon will pay Cree $12.5 million because of the termination. The company didn’t say if it still planned to spin off Wolfspeed.
“In light of this development, we are going to shift our focus back to growing the Wolfspeed business, said Cree's chief executive Svoboda.