* Aixtron in close contact with U.S., German authorities
* First time companies have resisted CFIUS objection
* Experts say concerns hinge on gallium nitride technology
* Aixtron shares down 6.6 pct after hitting 6-month low
(Recasts and writes through, adds experts on gallium nitride,
By Harro Ten Wolde and Sabine Siebold
FRANKFURT/BERLIN Nov 21 Concerns over China
gaining access to the secrets of producing a little known
material used in military equipment appear to be behind the U.S.
block on a 670 million-euro ($713 million) Chinese bid for
German chip equipment maker Aixtron.
Gallium nitride, a powdery yellow compound used in
light-emitting diodes (LED), radar, antennas and lasers, is
grown using Aixtron-manufactured technology, which has in the
past been sold to U.S. military equipment maker Northrop Grumman
Aixtron said on Friday that the Committee on Foreign
Investment in the United States (CFIUS) would recommend that its
takeover by China's Fujian Grand Chip Investment Fund (FGC) be
CFIUS never gives reasons for its decisions. But sources
have previously told Reuters it blocked the $3.3 billion sale of
Philips' lighting business, Lumileds, to a consortium
of Chinese investors last January over gallium nitride concerns.
Experts suggest the United States would want to stop China
and Russia getting hold of gallium nitride technology, which can
boost the power and sensitivity of weapons systems while
reducing their cost as it requires less electricity.
The technology is being used to upgrade the radars of both
U.S. and foreign-owned Patriot missile defence systems - which
are key to defeating air and missile attacks by enemy countries.
Colin Humphreys, a physics professor at Cambridge
University, said the technology enabled military radars to
operate at much higher frequencies and are used in jammers that
allow fighter jets and other aircraft to fly undetected.
In order to sense such radar waves, potential enemies such
as Russia or China would have to have access to military
technology using gallium nitride, he said.
"I'm not aware that the Chinese or the Russians have such
weapons systems at the moment," said Humphreys, an expert on
Another European expert, who did not wish to be named, said
he believed fewer than 10 countries had access to the
technology, including the United States, Germany, France,
Britain and Japan.
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.
The U.S. resistance to the Aixtron deal shows concern is
rife in Washington about a leading manufacturer of the gallium
nitride technology coming under Chinese ownership.
"The Americans' big problem is not Moscow, but Beijing - in
economic terms and maybe also in military terms," the European
expert said, adding he would expect U.S. President-elect Donald
Trump to significantly raise export restrictions for the
A German economy ministry spokeswoman said its review of the
Aixtron deal was ongoing and independent of the United States.
The German government withdrew its approval for Fujian Grand
Chip Investment Fund LP (FGC), a Chinese investment fund
controlled by businessman Zhendong Liu, to take over Aixtron
last month, citing security concerns.
OUT OF OPTIONS?
Aixtron on Monday defied calls to scrap the sale, saying it
had "objective arguments" to overcome U.S. and German concerns
about it being bought by Fujian, without elaborating.
"We are in close contact with the authorities in the USA and
Germany," a spokesman said. He added it was up to customers to
decide to what use they would put Aixtron equipment.
Aixtron's decision to stick to the plan marks the first time
that companies involved in such a takeover have tried to press
ahead with a planned merger despite CFIUS objections. After
concerns were raised over the Lumileds sale, the parties walked
away from that deal.
Aixtron is seen as having a bleak future as a standalone
company as it struggles with overcapacity in a market dominated
by Chinese buyers.
The decision will now be referred to U.S. President Barack
Obama, who must block or allow the transaction within 15 days.
Shares in Aixtron were down 7 percent to 4.38 euros by 1414
GMT, at the bottom of the German technology index,
which was down 0.3 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
note, sticking to its "sell" recommendation.
($1 = 0.9401 euros)
(Reporting by Harro ten Wolde in Frankfurt, Anneli Palmen in
Duesseldorf and Sabine Siebold and Andrea Shalal in Berlin.;
Additional reporting and writing by Caroline Copley.; Editing by
Georgina Prodhan and Alexander Smith)