Theresa May’s promise to subject foreign takeovers of British companies to closer scrutiny by harbouring a formal bid for Imagination Technologies, a struggling chip maker, is going to be tested by a Chinese-backed fund.
Sky news discovered that advisers from the Wall Street bank Citi were hired by Canyon Bridge Capital Partners to work on an offer for one of Britain’s leading technology businesses, Imagination.
This weekend, sources noted that during talks with Imagination in recent weeks, Canyon Bridge had made significant progress, with a formal bid anticipated to presented after two weeks to the London-listed group.
They added that there are ongoing talks between Imagination and other unidentified parties, and warned that Canyon Bridge could yet decide against executing a formal bid.
Canyon Bridge has offices in Beijing, and Silicon Valley but is ultimately funded by entities connected to the Chinese government.
The company’s interest in acquiring Imagination comes after the Hertfordshire-based company announced in June that the loss of its contract to supply Apple’s graphics technology for iPhones and iPads implied that it would put itself up for sale.
That move has left Imagination in conflict with Apple, with the British company informing the stock market that it had made “no progress” in resolving it, last month.
It also announced that it was considering the sale of MIPS and Ensigma, two of its divisions, as well as listening to offers for the whole company.
Imagination designs and produces chips for manufacturers of smartphones, and also specialises in providing general purpose processing, where it counts Qualcomm and Broadcom as some of its principal customers.
Imagination remains to be noted as one of UK’s most technology companies, despite the drop in its stock market value, with its shares declining more than 42% in 2016.
That status was strengthened by Japan’s Softbank’s £24bn takeover of its fellow chip designer, ARM Holdings.
The deal occurred after Mrs May became Prime Minister since she has promised in the pages of the Conservatives’ manifesto to improve the rules on takeovers and mergers.
“We will require bidders to be clear about their intentions from the outset of the bid process; that all promises and undertakings made in the course of takeover bids can be legally enforced afterwards; and the Government can require a bid to be paused to allow greater scrutiny,” said the manifesto.
It continued that foreign ownership of companies controlling “important infrastructure” would not be allowed to weaken national security or “essential services”.
A forthcoming green paper is assumed to set out the Government’s perspective on these issues in greater detail, but it is believed by City sources that a Beijing-backed bid for Imagination would require ministers to obtain firm commitments about British technology jobs from Canyon Bridge.
The private equity firm has already having a hard time to convince officials from the U.S. that it should be permitted to own the manufacturer of specialist microchips, Lattice Semiconductor, for which it offered $1.3bn in 2016.
Canyon Bridge refiled an application to the Committee on Foreign Investment in the United States (CFIUS), which has records of blocking sensitive takeovers of American assets, twice already.
Investors of Imagination will be closely watching for details of the value attached to any offers for the company.
Its share price, which has wildly fluctuated in 2016, has left it with a market value of just £350m, dropping from about £2bn at its highest.
The investment bank, Rothschild, is advising Imagination on the talks with bidders.
Spokespersons from both Imagination and Canyon Bridge refused to comment this weekend.