DuPont-Rogers Merger Failure Puts Focus on Deals Needing China’s Approval

Yiqin Shen, Bloomberg News

WILMINGTON, DE - DECEMBER 11: Dupont corporate headquarters is seen on December 11, 2015 in Wilmington, Delaware. The two largest chemical manufacturing U.S. companies, Dupont and Dow, agreed to merge, and will become DowDuPont. (Photo by Mark Makela/Getty Images) Photographer: Mark Makela/Getty Images North America , Getty Images

(Bloomberg) -- Takeover targets awaiting approval from Chinese regulators slumped after DuPont de Nemours Inc. scuttled its planned acquisition of Rogers Corp. due to a drawn-out antitrust review.

Tower Semiconductor Ltd. and Silicon Motion Technology Corp., both of which have agreed to be bought out, saw their deal spreads widen Wednesday as traders dropped the stocks. Shares of Israeli chipmaker Tower fell as much as 4.7%, the most since January, sinking 23% below Intel Corp.’s offer price. Silicon Motion, which agreed to be bought by MaxLinear Inc., slid as much as 4.2% before reversing amid earnings results.

DuPont called off its proposed $5.2 billion deal with Rogers late Tuesday, saying it was “unable to get timely clearance” from required regulators. The company previously identified China’s State Administration for Market Regulation, SAMR, as the last remaining hurdle.

The move was a surprise to a number of merger arbitrage specialists. While the deal had hit its so-called walk date, the companies could have extended the deadline. Traders who bet on the transaction closing got burned by Rogers’s record 46% drop on Wednesday.

“Many had hoped for an extension or a price cut with DuPont having just completed its divestiture to Celanese, leaving a buyer with a lot of cash on its balance sheet,” said Cabot Henderson, a merger specialist at JonesTrading.

It isn’t unusual for China’s merger reviews of foreign companies to drag on. In 2018, US-based Qualcomm Inc. scrapped a $44 billion bid for Dutch chipmaker NXP Semiconductors NV after SAMR failed to approve the megadeal.

Now, mounting tensions between the US and China are adding to the concerns as the countries vie for preeminence in key technology sectors such as semiconductors, electric-vehicle batteries and artificial intelligence.

DuPont’s proposed purchase, which was announced in November 2021 amid a boom in takeovers, valued Rogers at a steep premium. Even before Tuesday’s decision, the stock was down 16% for the year and trading significantly below the offer price. Wednesday’s rout sent it plunging to a level not seen since November 2020.

“This termination is less about SAMR blocking a deal than DuPont using the delay to get out of a deal struck in a very different environment,” JonesTrading’s Henderson said.

Representatives for DuPont and Rogers didn’t respond to requests for comment.

Julian Klymochko, chief executive officer of Accelerate Financial Technologies, said that while the Dupont-Rogers deal was unlikely to have faced any major anticompetitive issues, in general “all deals subject to China approval face a material risk of termination.”

DuPont shares surged as much as 9.5% Wednesday, as analysts said terminating the Rogers acquisition will bolster the company’s balance sheet and improve its ability to do share buybacks.

Meanwhile, Silicon Motion bounced back to rise as much 8.6% after Needham & Co. upgraded the stock on its better-than-feared earnings and the upside potential of SAMR approving its deal with MaxLinear, noting the current spread is 86.6%. The stock has dropped more than 37% since the May deal announcement.

“While the process may take longer than expected, we believe chances are clearly above zero,” analyst Rajvindra Gill wrote in a note to clients.

(Updated with share prices at close of trading.)