FAIRCHILD DEAL FAILURE SEEN MAKING JAPANESE WARY
Schlumberger Ltd's <SLB.N> decision to
end an agreement in principle for Fujitsu Ltd <ITSU.T> to buy
80 pct of its <Fairchild Semiconductor Corp>, and the political
furore that surrounded the proposed sale, will make Japanese
companies more cautious in their efforts to acquire U.S. High
technology firms but will not halt such attempts, industry
analysts said.
    The collapse of the deal will not be a critical blow to
Fujitsu but it will boost the cost of future U.S. Expansion by
the Japanese firm, said analysts polled by Reuters.
    "The acquisition of Fairchild is not essential to Fujitsu's
North American operations, but it would have been a great
boost," James Capel and Co analyst Tom Murtha said.
    French-controlled Schlumberger said yesterday it was ending
the agreement because mounting political controversy in the
U.S. Made it unlikely that the sale of the Fairchild stake
could be completed in a reasonable time.
    The sale was opposed by the U.S. Commerce Department and
Defence Department, partly on national security grounds.
    Fujitsu's acquisition of Fairchild would have given the
Japanese computer maker control of a comprehensive North
American sales and distribution system and access to
microprocessor technology, an area where Fujitsu is weak,
analysts said.
    The deal would also have given Fujitsu 14 additional
microchip production facilities worldwide, eight of them in the
U.S., A report by the Capel firm said.
    "It was an entry point, a port for semiconductors and a
marketing channel for other things," said Barclays de Zoete Wedd
analyst Rick May.
    Several analysts said the purchase would not have given
Fujitsu access to critical defence technology.
    "(Fairchild) simply doesn't have key technology -- that's a
thing of the past," May said.
    The failure could be a blessing in disguise for Fujitsu as
it might have had to spend several hundred million dollars to
modernise Fairchild's production lines, Capel's Murtha said.
    The failure of the deal will doubtless encourage Japanese
firms to take a lower profile in attempts to acquire U.S. High
tech firms but they are unlikely to stop, analysts said.
    Most analysts said Fujitsu was likely to go the more costly
route of expanding its own production and distribution
facilities in the U.S., Although some said it could use the
estimated 200 mln dlrs set aside for buying Fairchild to try to
acquire some less politically symbolic firm.
    "It may slow the pace of Japanese acquisitions, but the
necessity of expanding their production and design capacity in
America remains," said Capel's Murtha. "The Japanese will
continue to shop for bargains, but it will be harder to find
ones that are politically acceptable."
    Japanese firms are likely to favour joint ventures or
smaller equity stakes in firms to avoid the political backlash
that blocked the Fairchild sale, analysts said. "They're not
going to slow up, they're just going to buy smaller pieces ...
Because of the political risk," said Barclays de Zoete's May.
    Several Japanese firms have already taken 10 to 30 pct
shares in smaller U.S. High technology firms such as super
minicomputer makers, he said.
    Opposition of the sort that blocked Fujitsu could end up
harming U.S. Firms and undermining a trend toward multinational
tie-ups, some analysts said.
    "This is not really of benefit to U.S. Firms either," said
Jardine Fleming (Securities) Ltd analyst Nick Edwards. "The
pooling of resources in semiconductors is a positive move --
why should the government step in to prevent it?"
    Japan's Minister of International Trade and Industry Hajime
Tamura told a press conference that interference by U.S.
Government officials in the Fairchild deal was inappropriate.
    "This is entirely a private sector matter and not a matter
for governments' comment," Tamura said. "I think it was improper
for U.S. Government officials to intervene to the extent they
did," he said.
    A spokesman told Reuters the ministry's view is that
international investment flows ought to be free and that such
flows are of increasing importance in line with the growing
closeness of U.S.-Japanese economic ties.
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