U.K. Chipmaker Said Chinese Investor Pushed for Board Nominees

(Bloomberg) -- Imagination Technologies Group Plc's owners defended plans to name members of a state-owned Chinese asset manager to the U.K. semiconductor designer's board, at the fund's request, because they could be helpful in plans to expand in China.

Canyon Bridge Capital Partners, a private equity firm with offices in California and Beijing, acquired Imagination in 2017 with a fund that was almost entirely provided by state-backed China Reform Fund Management, Imagination Chief Executive Officer and Canyon Bridge partner Ray Bingham said in a hearing of the U.K. Parliament's cross-party Foreign Affairs Committee on Tuesday.

Bingham said that the fund had made the request for board seats arguing it could provide directors who would be helpful in plans to expand in China.

China Reform's view was “that they could be even more helpful in China if they could be closer to the action, if you will, closer to the board activities,” Bingham said. The conversations “started in the fall of 2019 the discussion carried on for some time.”

Imagination Draws U.K. Scrutiny as Execs Quit Over China

Canyon Bridge has come under scrutiny for its role in China's attempts to acquire overseas technology and boost its domestic semiconductor capabilities. The investment company had its a takeover of a U.S. company blocked. The U.S. considers semiconductors vital to defense and has accused China of trying illegally get its hands on the technology, making the industry central to the trade war.

Now U.K. lawmakers are following up on opposition, expressed by ousted leadership at the chipmaker, to the exertion of Chinese influence over the company.

Bingham was called before the committee, along with former Imagination executives, after Canyon Bridge briefly considered putting three China Reform staff on its board. He argued that the Chinese financial backers are not trying to take control of the company and the board nominations were designed only to help it.

Push back from management and government led the company to abandon the idea. But the move cost Imagination its CEO and chief technology officer and led to a backlash from lawmakers, who are now concerned that the fund plans to shift parts of Imagination's business and sensitive technology from the U.K. to China.

China Reform, as a limited partner, provided 99% of the fund with the general partners providing the additional 1%, Bingham said. Still, as a limited partner, China Reform has no say over the management or direction of the company though Canyon Bridge listens to its investors, he said. China Reform is also not a direct shareholder of Imagination, he said.

“If you own 99% of an investment fund, I think you'd find that your influence is unlimited,” committee Chairman Tom Tugendhat said.

The Chinese investors have made introductions, helped the company understand how things work in the country and extended its influence by supporting the fund financially, but they haven't taken a hand in making decisions that are the prerogative of management or the board, Bingham said.

The committee is using the episode to start a discussion on whether the government should have more oversight over foreign acquisitions of U.K. technology companies.

There were other moments of tension during the two-hour-long hearing. Former CEO Ron Black, when asked if he could discuss whether Canyon Bridge had ever mulled moving Imagination's activities to China, said he was bound by a contract he signed when he joined the company and couldn't answer. Chief Technology Officer John Rayfield, who resigned in April and is working a six-month notice period, said he was similarly bound.

Imagination announced last month that Black was stepping down to be replaced by Bingham, Canyon's executive chairman. Black was in a standoff with the private equity firm over a proposal to increase Chinese control over Imagination's board, Sky News had reported previously. Rayfield said on Tuesday that he left over his concerns that the company's proposals to put China Reform executives on Imagination's board would limit its addressable market.