• by Thom Forbes  @tforbes, July 14, 2015

In what would amount to the most money shelled out by a Chinese company to acquire a foreign firm, Tsinghua Unigroup has reportedly prepared a $23 billion bid for Micron Technology, although the Boise, Idaho-based chipmaker says it has not received an offer yet. The Wall Street Journal broke the story late yesterday.

“The bid reflects a widening push by the Chinese government to build more domestic sources of semiconductors, which are crucial to consumer products like smartphones as well as equipment used for defense purposes. China is particularly weak in memory chips, having developed none of the key technology needed for the data-storing components,” write the WSJ’s Eva Dou and Don Clark.

“They have decided that they really have to buy somebody because they can’t deliver the intellectual property themselves,” International Business Strategies president Handel Jones tells them.

Tsinghua Unigroup is one of the companies created when China launched a policy of spinning off university-owned companies in the 2000s, writes Elizabeth Weise for USA Today. Tsinghua University, based in Beijing, is sometimes called the MIT of China.

Tsinghua Unigroup “has been on something of a buying spree. Two months ago Hewlett Packard sold it a majority stake in its Chinese server business for $2.3 billion. Last year it acquired California-based Spreadtrum Communications for $1.5 billion and RDA Microelectronics for nearly $1 billion,” reportsFinancial Times.

“This is the right move for Tsinghua because Micron has memory chip technology, which is very hard to develop,” Gu Wenjun, chief analyst at iCwise, a Shanghai-based consulting company, tells Bloomberg Business. “But there is only a small possibility U.S. regulators will approve this deal because it has a very strict review over offers from foreign capital, especially China.”

Fortune’s Geoffrey Smith points out that the U.S. has blocked past Chinese takeover attempts on security grounds — “notably, CNOOC’s bid for oil producer Unocal Inc. in 2005.” 

The Committee on Foreign Investments in the United States — an inter-agency committee chaired by the Treasury Dept. that reviews transactions that could result in control of a U.S. business by a foreign person — would be the likely body to conduct an investigation. But “when a transaction isn’t referred to the government by the companies involved, government officials can choose to launch an inquiry of their own,” write Dou and Clark.

Responding to the news, “shares of Asian memory makers, including Korea-based SK Hynix and Samsung Electronics, fell sharply. The fear is that under Chinese ownership, Micron could ramp up production aggressively, unsettling the cozy oligopoly that the industry has settled into,” Aaron Back reports for the Wall Street Journal in a piece that look at several hurdles facing any potential acquisition.

Reuters Breakingviews columnist Robyn Mak thinks the “Micron would be a less-than-fab deal for China,” citing three reasons —including the “political scrutiny” it would receive. She also believes that “deal sounds opportunistic” because the 19% premium on the previous close that Tsinghua Unigroup is purportedly offering “looks cheap, especially since [Micron] shares had halved this year” and shareholders may want more. 

Indeed, investor and Greenlight Capital hedge fund manager David Einhorn wrote in an investor letter yesterday that Micron would be worth more than Netflix within the next few years, suggesting “its shares, which fell about 31% in the second quarter, ‘have fallen too far,’” reports Reuters’ Sam Forgione. “In today's market, the best-performing stocks are companies where accountability is in the distant future,” Einhorn said in what was primarily a dig at Netflix. “Apparently, Red Ink is the New Black,” he added.

Finally, Reuters’ Mak writes, “Retaining Micron staff and management, bringing manufacturing operations to the mainland, and potentially consolidating the business with Unigroup’s other investments, will be no picnic.”

But it seems intent on packing a basket and rolling out the blanket nonetheless.

“Last year domestic chipmakers like Tsinghua supplied an estimated 9.5% of the nation’s overall semiconductor market, which was valued at well over $150 billion,” Josh Horwitz writes for Quartz.

“The government wants to improve that share. It has told domestic media it intends to spend $161 billion in fostering growth among domestic chipmakers. It’s also exerted pressure on foreign firms, namely by issuing burdensome fines and lawsuits,” including one settled by Qualcomm for $975 million this year.