FCS Fairchild Semiconductor International, Inc. (MM)

A powerful federal committee blessed China National Chemical Corp.'s $43 billion planned takeover of seed giant Syngenta AG, months after shooting down much smaller Chinese deals for electronics and lightbulb manufacturers.

The decision indicates that potential worries about the long-term security of the American agricultural industry resonate far less than immediate concerns over foreign ownership of technology and cybersecurity assets, according to lawyers who work on foreign-driven merger deals.

The Committee on Foreign Investment in the U.S., or CFIUS, a Treasury-led panel that can scotch mergers over national-security concerns, has approved multibillion-dollar deals putting swaths of U.S. food production under Chinese ownership in the past three years.

State-owned ChemChina's planned purchase of Syngenta, which supplies about one-fifth of the world's pesticides and about 10% of soybean seeds to U.S. farmers, would rank as Beijing's biggest-ever overseas deal. Swiss-based Syngenta generates about one-quarter of its sales from North America.

"They've not yet reached the point where they have found an acquisition in the food and agriculture sector to threaten national security," said Stephen McHale, a partner at Squire Patton Boggs who has helped shepherd deals through the CFIUS process. The body's rulings reflect a view that the U.S. is "very secure in its food supply."

But CFIUS has emerged as a key hurdle for Chinese firms looking to acquire technologies.

If national-security concerns are found, CFIUS can recommend that companies modify their deal or divest U.S. assets. It can also recommend that the U.S. president block the deal, though typically companies will abandon transactions before then. CFIUS has the ability to review any deals that result in change of control of a business operating in the U.S., even if it is part of a company based abroad.

In January, Philips NV said it would drop a $2.8 billion deal to sell its Lumileds LED lightbulb business to an investment fund led by Chinese venture-capital firm GSR Ventures, following undisclosed concerns from CFIUS.

Fairchild Semiconductor International Inc. opted in February to turn down a bid from China Resources Microelectronics Ltd. and Hua Capital Management Co. in favor of an existing deal to be bought by Arizona-based ON Semiconductor Corp. Fairchild cited the risk of a failure to obtain CFIUS approval.

Also in February, Western Digital Corp. said Beijing-based Unisplendour Corp. terminated a plan to buy a 15% stake in the disk drive maker for $3.78 billion after the committee informed the companies it would investigate the transaction.

CFIUS includes representatives from 16 U.S. departments and agencies, including the Treasury, Homeland Security and Defense departments. Its deliberations are confidential, and some regard the process as opaque.

Its approval of the ChemChina-Syngenta deal, as well as the 2013 sale of U.S. pork giant Smithfield Foods Inc. to China's WH Group Ltd., suggests a different view of the technology that goes into breeding and processing hogs for pork chops and developing corn plants capable of repelling pests, say lawyers familiar with the CFIUS process.

Syngenta and ChemChina announced the CFIUS approval Monday but didn't comment on any conditions required by the committee. A spokeswoman for the Treasury Department declined to comment on the Syngenta deal or CFIUS's attitude toward China.

Erik Fyrwald, Syngenta's chief executive, said the deal would benefit farmers and crop production globally by placing Syngenta under ownership of a deep-pocketed company that will support long-term investments in research. "The interests of China and U.S. agriculture are aligned in this deal," he said.

Some lawmakers and farm groups continued to warn on Monday of longer-range threats to U.S. agriculture as China—among the world's top buyers of agricultural commodities—absorbs more of the technology that has made the U.S. the largest global producer of corn, soybeans, beef and chicken meat.

Bringing Syngenta into the portfolio of ChemChina is also expected to spur China's adoption of genetically modified crops and other agricultural advances as the country strives to become more food secure.

"The fact that a [Chinese] state-owned enterprise may have yet another stake in U.S. agriculture is alarming," said Sen. Charles Grassley (R., Iowa). Mr. Grassley in July introduced a bill that seeks a permanent spot on CFIUS for the U.S. Department of Agriculture to scrutinize deals for food-security threats, and in April joined other senators calling for deeper scrutiny of the ChemChina-Syngenta deal.

"Chinese investments in the United States often attract close scrutiny not only from CFIUS but also from the media, the Congress and industry competitors, all of whom have different agendas," said Mark Plotkin, who works on CFIUS cases in Washington at law firm Covington & Burling LLP.

Some U.S. farm groups remained cautious that ownership under ChemChina could give Syngenta advantages over rivals in China. The country is a potentially massive market for agricultural products that has yet to fully allow foreign-based firms to compete domestically, and which has yet to deeply embrace genetically engineered crops. Syngenta officials have said they don't anticipate any special treatment there.

Yet securing the CFIUS nod on Monday sends a positive signal for a mergers-and-acquisitions market that has been buoyed by China, and closely watched by bankers and executives of U.S. companies.

Chinese firms have struck about $160 billion worth of foreign takeover deals so far this year, far greater than any full year on record, according to Dealogic.

Approval from CFIUS may not mean that ChemChina's deal for Syngenta is free and clear.

The transaction still requires approval by antitrust authorities in the European Union and the U.S. who will examine the combination of Syngenta and ChemChina, given ChemChina's ownership in Israeli pesticide manufacturer Adama Agricultural Solutions Ltd., though that company mainly focuses on generic products.

Lawmakers could also keep up pressure on the deal. When Dubai Ports World in 2005 moved to buy U.S. shipping ports on the East Coast, CFIUS initially approved the transaction, but a campaign by U.S. senators and others concerned about national security later led to the deal's collapse.

Don Clark contributed to this article.

Write to Jacob Bunge at jacob.bunge@wsj.com, Brian Spegele at brian.spegele@wsj.com and William Mauldin at william.mauldin@wsj.com

(END) Dow Jones Newswires

August 22, 2016 21:35 ET (01:35 GMT)

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