Aixtron says has arguments to counter security worries over China deal

German chip equipment maker Aixtron (AIXGn.DE) said on Monday it had factual arguments to overcome U.S. and German concerns about its being bought by a Chinese consortium, which appear to hinge on the defense applications of its technology.

Aixtron makes so-called close coupled showerhead reactors for the growth of gallium nitride materials, which are used in light-emitting diodes (LED) but also in military applications such as radars and combating improvised explosive devices.

Its technology has been sold in the past to U.S. defense contractor Northrop Grumman (NOC.N).

Aixtron said on Friday that the Committee on Foreign Investment in the United States (CFIUS) would recommend that its pending takeover by China’s Fujian Grand Chip Investment Fund (FGC) be blocked.

CFIUS never gives reasons for its decisions.

But Aixtron said it was sticking to the takeover plan, marking the first time that companies have tried to press ahead with a planned merger despite CFIUS objections.

Aixtron is seen as having a bleak future as a standalone company as it struggles with overcapacity in a market dominated by Chinese buyers.

“We have objective arguments to overcome the concerns,” a spokesman said on Monday, without elaborating. “We are in close contact with the authorities in the USA and Germany.”

The spokesman said it was up to customers to decide to what use they would put Aixtron equipment.

The decision will now be referred to U.S. President Barack Obama, who must block or allow the transaction within 15 days.

CFIUS also blocked the $3.3 billion sale of Philips’ (PHG.AS) lighting business, Lumileds, to a consortium of Chinese investors last January.

Among other things, Lumileds makes components for LEDs. The parties walked away from the transaction after CFIUS objected to the deal.

The global gallium nitride market is expected to grow to $1.1 billion in 2020 from an estimated $518 million last year, according to research firm Technavio.

Shares in Aixtron were down 5.9 percent to 4.43 euros by 1003 GMT, at the bottom of the German technology index .TECDAX, which was down 0.4 percent, and well below Grand Chip Investment’s offer price of 6.00 euros per share.

Earlier, the stock hit a 6-month low of 4.25 euros.

“What Aixtron needs is a white knight from Europe or the U.S. (e.g. Applied Materials) as the company has no viable future as a stand-alone business, in our view,” said analyst Tim Wunderlich at German brokerage Hauck & Aufhaeuser in a client not, sticking to its “sell” recommendation.

Aixtron fell to a loss in the third quarter and reported that its future orders centred on a low-margin product, underscoring the importance of the planned takeover.