Bush administration still undecided on ASML-SVG merger as review deadline approaches

Bush administration still undecided on ASML-SVG merger as review deadline approaches
SANTA CLARA, Calif. -- The Bush administration is struggling to take an official position on the proposed sale of Silicon Valley Group Inc. to ASM Lithography of the Netherlands with just several days left in a U.S. review of the transaction, SBN has learned.

On Thursday, a panel of top U.S. agency officials was unsuccessful in working out a consensus on ASML's planned purchase of SVG and its advanced photolithography assets. Consequentially, the administration has asked its top national security advisor, Condoleezza Rice, to get directly involved in the review and help work out an official stance for President Bush to take on the proposed ASML-SVG merger, sources have told SBN.

ASML is attempting to buy SVG to become the world's largest supplier of lithography systems for semiconductor production. The acquisition was apparently moving ahead to be finalized in the first quarter, but then it was suddenly delayed when Congress' Committee on Foreign Investment notified the companies that it was conducting a 45-day review of the proposed purchase because of potential national security concerns (see March 8 story).

That review appeared to be going along smoothly for the ASML-SVG merger, but at the start of April a non-profit group in Washington, called the U.S. Business and Industry Council, began circulating a video tape that shows lithography experts against the sale of SVG and its leading-edge technology to the Dutch company. About 650 copies of the controversial 15-minute tape were sent to leaders in Congress and U.S. government officials, including President Bush (see April 13 story).

ASML and SVG officials have called the tape a last-ditch effort to stop the purchase, which has received the endorsement of Intel Corp. and other U.S. chip makers as well as the Semiconductor Industry Association (SIA).

But officials in the Bush administration are still apparently wrestling with the proposed sale.

Sources said Rice has gotten involved after a U.S. interagency panel, called the Committee on Foreign Investment in the United States (CFIUS), could not reach a consensus on ASML's takeover of SVG. CFIUS is an Executive Branch body with representativesfrom various departments, including State, Defense, Treasury, Commerce and others.

Faced with what could be a problematic situation on several fronts, the Bush administration is scrambling to resolve the ASML-SVG matter--and quickly. The 45-day review period is set to end on Monday (April 23). The CFIUS has been expected to present a recommendation to President Bush, who would most likely put a "rubber stamp" on the deal.

Some experts said the review process has never exceeded the 45-day period that's set under federal law, and it remains unclear what would happen if the Bush administration does not come up with either an approval or rejection of the ASML-SVG merger. It is possible that ASML's plans to finish up the acquisition could be delayed beyond May, if Bush does not approve the deal on Monday, according to some experts.

President Bush himself does not want to make the final decision concerning the ASML-SVG merger, and he is leaning heavily on CFIUS to form a consensus on the deal, said analyst David Brinkley, who tracks technology and national security issues at DFI International Inc., a market research firm in Washington.

"I've heard the administration doesn't want to deal with it," Brinkley added.

But at the same time, there are still some major disagreements among U.S. government agencies within the CFIUS group over the proposed sale of SVG to ASML.

"My sense is that the Defense Department wants to approve the deal," Brinkley said. But on the other hand, there is a "minority group" with the Department of Commerce "that opposes the deal," he added.

Earlier this week, Intel's vice president of worldwide government affairs, Jim Jarrett, said the Department of Defense had given the acquisition its blessing (see April 19 story). One of the major concerns over U.S. national security centers on SVG's Tinsley Laboratories unit, which had supplied lens-polishing capabilities for defense satellites in the 1990s.

According to sources, the officials in the Commerce Department have expressed concerns about Tinsley's technologies being owned by a foreign company.

A spokesman from the Commerce Department declined to comment on the ASML-SVG merger. The spokesman referred all inquiries to the Department of Treasury, which is the leading agency behind the CFIUS group.

The Treasury Department could not be reached for comment. Calls to Rice's office in Washington were not returned.

It's unclear what direction the CFIUS group will take. Some sources said the CFIUS group is scheduled to meet over the weekend to try and reach a consensus. But some sources said it could be difficult for an agreement to be reached in a few days, based on the group's track record.

"Since ASML announced the deal, the interagency federal Committee on Foreign Investment in the United States (CFIUS) supposedly has been examining its military implications," wrote Alan Tonelson in an opinion piece in today's Washington Times. Tonelson is a research fellow at the U.S. Business and Industry Council (USBIC) in Washington.

"But this body's record should inspire no confidence. In its 13 years of existence, CFIUS has investigated seriously only 18 of the 1,300 proposed transactions brought to its attention. Only one has been turned down, and among the many approved have been foreign takeovers that have eliminated U.S. corporate presences in other key phases of semiconductor manufacturing," Tonelson wrote.

The editorial is the latest lobbying effort by the U.S. business organization to block the sale. The group's 15-minute tape, entitled "Why The Sale Of SVG Co. Is Bad For The United States," is aimed at raising concerns about national security.

On the video tape, former SVG Lithography president Edward A. Dohring and Ultratech Stepper Inc. chief technology officer David Markle both raise a variety of questions about the impact of ASML's purchase of Silicon Valley Group. Dohring, who retired in December 1998, rejected claims that SVG was too small and too financially weak to compete against larger Japanese and European lithography suppliers--including ASML (see April 16 story).

Ultratech's Markle said he worried about the loss of control over advanced and next-generation lithography systems, including extreme ultraviolet (EUV) technology, which could end up in the hands of unfriendly nations (see April 17 story).

Both Dohring and Markle also raise other concerns on the video tape, including the fact that SVG is the last remaining leading-edge, U.S.-based company in the lithography business. If ASML acquires SVG, then the United States is void of perhaps the most critical piece of the chip-manufacturing puzzle--lithography, they warn.

The SIA--a trade group that has also endorsed the ASML-SVG merger--disagreed. "We are very supportive of the merger," declared George Scalise, president of the SIA, in an interview with SBN.

"I don't think that we are losing our last supplier of lithography," Scalise said. The merger will ensure that "a good portion of SVG's technology and manufacturing will remain in the United States," he said.

Still, ASML, SVG, Intel, and others are bracing for President Bush's expected decision on the merger on Monday. Asked to predict an outcome on Monday, Scalise said: "We think it will get approved."