The Trump administration has launched an urgent probe into attempts by a state-owned Chinese investor to seize control of Imagination Technologies Group, the British-based chip developer.
Sky News can reveal that the Committee on Foreign Investment in the US (CFIUS), a powerful national security body based in Washington, has begun making enquiries about the intentions of China Reform Holdings, which has close links to Beijing.
The move places Imagination, which counts Apple among its most important customers, at the centre of government investigations on both sides of the Atlantic amid expectations of a surge in protectionist sentiment fuelled by the coronavirus pandemic.
CFIUS is understood to have written to Canyon Bridge Capital Partners, which took control of Imagination two-and-a-half years ago in a £550m deal, in the last few days.
The committee, which blocked Canyon Bridge’s takeover of Lattice Semiconductors in 2017, is said to have written an “extremely detailed” letter to the private equity investor.
Canyon Bridge was based in the US, and retains offices there, but redomiciled to the Cayman Islands after CFIUS’s intervention in the Lattice deal.
The firm’s main backer is China Reform Holdings, a state-controlled venture capital investor.
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CFIUS is likely to be interested in any possible risk to intellectual property developed in the US prior to Imagination’s takeover.
Imagination’s relationship with Apple, which was rekindled in January with a new licensing deal, is also expected to be a focal point.
The British company’s sale to Canyon Bridge was approved by the US government subject to its disposal of MIPS, a graphics processing unit operating in the US.
MIPS was sold to Tallwood Venture Capital, a California-based investor, which subsequently combined it with Wave, an artificial intelligence processing business.
News of CFIUS’s probe comes after a troubled week for Hertfordshire-based Imagination, which employs 550 people in the UK and 300 more around the world.
Sky News revealed last weekend that its UK workforce could be endangered by a plot being hatched by China Reform to take control of its board by nominating four new directors.
Imagination is said to have been told that China Reform ultimately wanted to move the company’s headquarters and its intellectual property assets to the world’s most populous country.
An emergency board meeting had been scheduled for Tuesday, but was called off just 24 hours before it was due to take place, with Canyon Bridge offering reassurances to the UK government that it was committed to Britain.
On Friday, however, the company said that Ron Black, its chief executive, had resigned.
He is thought to have been forced out because of the escalating row about Imagination’s future.
In a statement, the chip designer said: “At a time when the global economy is under significant stress, Imagination is well positioned to benefit from trends towards continued automation, connectivity, and widespread implementation of AI technologies.”
Ray Bingham, a Canyon Bridge executive who has been appointed as Imagination’s executive chairman, added: “Since acquiring Imagination Technologies in 2017, we’ve made great progress in transforming the company and we remain fully committed to the UK and to supporting our customers around the world.
“Our strategy will benefit the company’s headquarters and global business development and our priority remains our customers and staff.”
No details were provided, however, of how Imagination would be “increasing its investment in the UK”.
Imagination is regarded as one of Britain’s most important technology companies, and boasts that its graphics processing units (GPUs) are used in 30% of the world’s mobile phones and, in total, 11bn devices globally.
It was the tenth most prolific UK-based filer of patents in the European Union last year – ahead of Dyson and the chip designer ARM Holdings, which is owned by Japan’s SoftBank.
The UK government is also pursuing an investigation into events at Imagination.
Oliver Dowden, the culture secretary, told MPs this week that officials were “working with their counterparts in the departments for Business, Energy, and Industrial Strategy, the National Cyber Security Centre, the Foreign Office, and Cabinet Office as a matter of urgency to understand the facts”.
He added that he was seeking an “urgent meeting” with Ray Bingham, Imagination’s executive chairman and a partner at the chip designer’s owner, Canyon Bridge Capital Partners.
Mr Dowden told four select committee chairs that the government remained committed to legislation “to give the government further powers to scrutinise foreign transactions in the form of the National Security and Investment Bill”.
“The Bill will strengthen our powers by building on our current merger and takeover regime and will be wide reaching and broad enough to keep pace with technological innovation,” he wrote.
Although the board meeting – which was convened to elect four China Reform nominees as directors – has been cancelled, industry sources say that China Reform’s move has raised significant issues about the ownership and control of British technology assets.
The foreign affairs select committee has launched a separate inquiry into “foreign asset-stripping of UK companies”, which comes in the wake of the government’s decision to give Huawei, the Chinese telecoms equipment manufacturer, a role in the construction of Britain’s 5G network.
An Imagination spokesman declined to comment on Saturday.
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