PHG Koninklijke Philips NV

FRANKFURT—U. S. regulators are yet again set to block a takeover of a European technology company by a Chinese buyer, a further sign of how China Inc.'s recent shopping binge is raising security concerns in the Western world.

German technology firm Aixtron SE late Friday said it was informed by the powerful Committee on Foreign Investment in the U.S., or CFIUS, about "unresolved U.S. national security concerns regarding the proposed transaction."

The news comes after Germany's economics ministry late last month withdrew its earlier approval and reopened a review of the €670 million ($710 million) acquisition of Aixtron by Grand Chip Investment GmbH, the German unit of China's Fujian Grand Chip Investment Fund LP.

Aixtron, a chip-equipment manufacturer, said CFIUS recommended the parties "abandon the entire transaction" and that the authority plans to recommend that U.S. President Barack Obama block the transaction because there are no possible remedies to mitigate concerns.

People familiar with the work of CFIUS suspect that a new, highly efficient semiconductor technology based on gallium nitride, or GaN, could have been the stumbling block for the Aixtron deal.

Spokespeople for CFIUS, a part of the U.S. Treasury, weren't immediately reachable.

GaN technology can improve military applications such as radar transmitters by boosting their power while consuming less electricity. The Pentagon has bet heavily on the use of GaN to improve the performance of some of its most sophisticated weapons. The technology is being pursued to boost performance of systems such as the Thaad antimissile system to be deployed to South Korea against North Korea's long-range rocket threat as well a U.S. Navy program to jam enemy radars.

Aixtron has been selling products focused on GaN for a number of years to companies including U.S. defense contractor Northrop Grumman Corp. The company, like its rival Raytheon Co., has signed contracts with the U.S. military over products that use GaN technology.

Aixtron said the U.S. President "must now render his decision to block or allow the proposed transaction within 15 calendar days."

A spokesman for Fujian Grand Chip Investment declined to comment.

Aixtron shares dropped about 4% in Germany's after-hours trading late Friday.

The company has been struggling over recent years, especially after China's Sanan Optoelectronics Co. cut back on a large order late last year. The move shaved nearly half of Aixtron's market value and left the company looking for a buyer.

Months later, Grand Chip Investment, another Chinese enterprise from the province of Fujian, offered to buy Aixtron.

Aachen, Germany-based Aixtron produces machines that cut wafers into products used in chips. It is one of the largest rivals of Applied Materials and Veeco Instruments Inc. from the U.S.

Both Aixtron and Veeco reported net losses for the third quarter on the back of lower revenues, and some analysts have said Aixtron is clearly in need of a financially strong partner or owner.

The machine makers are heavily reliant on the chip industry and spend more than one quarter of their revenue on research and development of new products. Should one new technology face delays in coming to market, Aixtron and Veeco suffer from delayed orders and sit on investments that don't pay off.

CFIUS involvement in large deals isn't new. Dutch electronics firm Royal Philips NV this year canceled the sale of its lighting component and automotive-lighting unit to a Chinese investor because CFIUS torpedoed the deal on security concerns.

One of the people familiar with CFIUS's work said that GaN technology may also have been a stumbling block for that transaction.

In Germany, lighting company Osram Licht AG is scrambling to get approval from the German government for the sale of its lightbulb businesses to China's MLS Co. Sanan and MLS have both considered acquiring Osram altogether, people familiar with the matter said earlier. Those people added it is unlikely a move to buy Osram would be feasible given political backlash amid resistance from labor unions.

Write to Eyk Henning at eyk.henning@wsj.com

(END) Dow Jones Newswires

November 20, 2016 20:35 ET (01:35 GMT)

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