Blog: Does China Have Imagination?

Article By : Junko Yoshida

I blame Canyon Bridge for triggering the latest Imagination board fiasco. Every planned acquisition or top executive change engineered by Canyon Bridge has turned sour as it drew unwanted scrutiny from authorities, customers, employees and media...

There’s a corporate boardroom drama unfolding at Imagination Technologies (Kings Langley, the U.K.) that features high finance, international intrigue, and an all-star cast. It’s an irresistible story, and like many of the greatest TV dramas, the suspense hinges on figuring out who’s the real villain. Is it…

  • Ron Black. The American CEO credited with engineering a recent turnaround at Imagination Tech. He was abruptly removed from his position last Friday.
  • Ray Bingham. Imagination’s chairman, and now Imagination Tech’s interim CEO. Bingham is also co-founder and partner at Canyon Bridge Capital Partners (formerly based in the U.S., but now registered in the Cayman Islands), which purchased Imagination Technologies in September of 2017.
  • Jon Kao and Peter Kuo. Co-founders and partner of Canyon Bridge. They sit on the board of Imagination Tech, along with Bingham. Black, the fourth member of the board, was kicked out when he was removed as CEO.
  • China Reform Holdings. A $30 billion venture fund controlled by the Chinese government. China Reform is a key backer for Canyon Bridge. Imagination Tech had an emergency board meeting originally scheduled last Tuesday; that meeting was to push through the appointment of four board members with links to China Reform.
  • Oliver James Dowden. Culture Secretary of the U.K. government. Hearing of the meeting, Dowden intervened, apparently  concerned that Imagination Tech’s board would shift the company’s intellectual property (IP) from the U.K. to China. The meeting was called off.
  •  Houssein Yassaie, former CEO of Imagination. Following Black’s ouster, Yassaie has spoken out against China Reform’s taking control of Imagination. He contends the company’s IP is strategically important to the U.K. He says he is now in “deep discussion” with relevant cabinet ministers in the U.K.

Who you suspect to be the villain probably depends on where you stand in the geo-political spectrum.

If you think Imagination should be considered a British asset because it was founded in the U.K., and therefore should not be cozying up with China, you are aligned with Ron Black, Oliver Dowden and Houssein Yassaie.

But if you’re of the philosophy that capital has supreme rights, regardless of where company headquarters are located, then you’re siding with the financiers at Canyon Ridge, which owns Imagination Tech lock, stock, and barrel.

If you’re a reporter, you simply can’t resist intrigue. But I digress.

Interestingly, it’s not clear where Imagination Tech actually is. The U.K., where it has operations? The Caymans, where its nominal owner is? China, where the money to buy Imagination Tech came from?

One of our colleagues at EE Times China told us, “Last time when we met with Imagination executives here, they claimed they were a Chinese company.”

What Will Imagination Do Next?

So, our Chinese colleagues are wondering: why shouldn’t Imagination favor China’s national interests? And why is a little palace intrigue at Imagination Tech such a big deal?

Here’s how Yassaie framed the issue:

Given Imagination’s IP are critical to designing telecoms, automotive, consumer, industrial, medical and defense end markets, Imagination’s non-Chinese customers around the world would “rightfully demand and expect adequate independence, security of supply and trust in the organization.”

Yassaie went a few steps further. He stressed that the UK needs to learn from past mistakes and start adequately protecting key capabilities, entities and companies that make the nation independent and relevant in areas that really matter.

The U.K. government must protect its own high-tech industry, he insists. Point taken.

But now, throw into this debate the meddling of the flatly protectionist Committee on Foreign Investment in the U.S. (CFIUS), a national security committee in Washington, D.C.  Sky News reported that CFIUS has already begun making inquiries about “the intentions of China Reform Holdings, which has close links to Beijing.”

CFIUS has recently become the anvil the U.S. government drops at will on investments or M&A deals involving companies with ties to China.

Canyon Bridge’s culpability
Protectionist sentiments aside, I blame Canyon Bridge for triggering this fiasco. Although I’m hesitant to finger Bingham, I can point out that every investment, planned acquisition or top executive change engineered by Canyon Bridge has turned sour as it drew unwanted scrutiny from authorities, customers, employees and media.

  1. Lattice-Cypress-Canyon Bridge (Feb. 2016- Sept. 2017)

Consider the failed attempt by Canyon Bridge (led by Bingham) to acquire Lattice Semiconductor for $1.3 billion three years ago.

Canyon Bridge and Lattice refiled their CFIUS application for the second time in June 2017. But less than three months later, U.S. President Donald Trump nixed the acquisition.

This abrupt ending traced its origins to February 2016, when Lattice first approached Cypress Semiconductor to gauge its interested in buying Lattice. Cypress declined. To make things even more intriguing, Bingham was Cypress’ chairman at the time. He became a co-founder and partner of Canyon Bridge in November of that year.

During that 18-month period from the time Lattice approached Cypress and Canyon Bridge tried to buy Lattice and failed, Bingham left the boards of several tech companies, including Cypress and Oracle Corp., because of concerns about his ties to Canyon Bridge.

  1. Imagination-MIPS-Canyon Bridge (Feb. 2017-Nov. 2017)

While Canyon Bridge misfired at its first target, the fund was also working on a bid for Imagination Technologies.

By June 2017, Imagination was up for sale, after its stock prices spectacularly plummeted. The cause was Imagination’s disclosure to its shareholders in April 2017 that Apple, Imagination’s biggest customer, planned to stop using its intellectual property within its system-on-chips.

In September 2017, Imagination announced that it was getting acquired by Canyon Bridge. By November, the deal was approved in a transaction priced at £550 million.

Meanwhile, leading up to the sale to Canyon Bridge, Imagination chose to divest the U.S.-based processor core IP company MIPS Imagination – which Imagination had acquired in 2013. MIPS was sold to Wave Computing in June 2017. (Imagination reportedly took this action to short-circuit investigations by CFIUS before its sale to Canyon Bridge.)

  1. Installing Leo Li as Imagination CEO (April 2018 – December 2018)

After sealing its deal with Imagination, Canyon Bridge wasted no time strengthening ties with China by installing Leo Li as Imagination’s new CEO. Li is a former CEO at Spreadtrum and co-president of Tsinghua Unigroup.

Asked what role Li is expected to play at Imagination, Bingham at that time stressed that Li is a U.S. citizen, with many years of experience at U.S. firms.

When EE Times asked if Canyon Bridge bought Imagination because it hoped for a closer bond between the U.K. company and China, Bingham carefully responded: “That doesn’t mean Canyon Bridge is going to box up people [in the U.K. at Imagination] and move them to China.”  Instead, Li moved from Shanghai to head up the show in Kings Langley.

As it turned out, Li stayed at Imagination less than a year. Li is back in China, working at Tsinghua Unigroup.

  1. Replacing Li with Black  (December 2018 – April 2020)

Ron Black replaced Li in December 2018. But Black’s tenure at the helm of Imagination also ended up short-lived.

Until the latest shakeup, according to the UK’s Companies House website, Imagination had four directors on its board: Ron Black, Ray Bingham, Peter Kuo and John Kao. Among them, Black alone was not affiliated with Canyon Bridge. The other three are all co-founders and partners of Canyon Bridge. It’s unclear what exactly Bingham et al were expecting Black to do at Imagination.

Despite Canyon Bridge’s China aspirations, China represents a third of Imagination’s global business today.

It is unknown how much Black was in tune with the Canyon Bridge strategy favored by Bingham, Kuo and Kao.

After all, Canyon Bridge lays out on its web site the firm’s investment strategy as follows:

We invest in companies with potential to sell into tech-hungry Chinese markets, leveraging our expertise and relationships to access opportunities and drive growth.

We’re especially interested in companies with technology that has significant synergies with the fast-growing Chinese market…

Corporations exist to serve their owners’ interests. In that light, it seems reasonable to finally recognize Imagination as a Chinese company.

Yassaie, nonetheless, argued that while the U.K. welcomes foreign investment, such investment “should be governed under certain rules to protect our nation interest.” I understand where Yassaie wants to go with his argument, but it’s not clear to me what “certain rules” he’s talking about.

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