TOKYO -- A U.S. government panel has blocked top Japanese building supplies maker Lixil Group from selling off a money-losing Italian subsidiary to a Chinese company, demonstrating how trade tensions pose a growing risk to cross-border corporate deals.
Lixil said on Monday that the Committee on Foreign Investment in the United States, an interagency body led by the Treasury Department, did not approve the 467 million euro ($535 million) sale of Italian architectural unit Permasteelisa to Chinese construction group Grandland Holdings. Lixil said it was "considering future options" and has not given up on the sale.
CFIUS can block acquisitions by foreign companies on American national security grounds and has traditionally focused on such sensitive industries as telecommunications and food. But its remit has widened.
This August, U.S. President Donald Trump signed a law extending CFIUS' review powers to 27 industries, such as semiconductors.
Permasteelisa, which generates about 40% of its revenue in the Americas, is known for its exterior building products -- a field that appears to have little to do with national security. It supplied over 2,000 glass panels for the exterior of New York's One World Trade Center, as well as providing materials for Apple's California headquarters and the Museum of Modern Art in Manhattan.
"The trade war probably had an effect" on the American decision to reject the deal, Lixil Chief Financial Officer Sachio Matsumoto said.
Lixil expects net profit to take a 23.5 billion yen ($208 million) hit in the year ending March 2019 from its inability to unload the loss-making Italian unit or reap tax savings from the sale as expected.
Lixil -- whose brands include Inax and American Standard kitchen and bathroom fixtures -- on Monday slashed its group net profit forecast to 1.5 billion yen from 50 billion yen for the year ending next March.
Permasteelisa was bought by Lixil for roughly 575 million euros in 2011. In August 2017, the Japanese parent announced that it had agreed to sell the company to Shenzhen-based Grandland.
The Trump administration has wielded CFIUS as a weapon against Chinese deals. Alibaba Group Holding affiliate Ant Financial and U.S. money transfer company MoneyGram called off a merger in January after failing to win approval. In March, the administration blocked on CFIUS' recommendation a bid for American chip company Qualcomm by then-Singapore-based peer Broadcom, whose Chinese ties had come under scrutiny. Broadcom is now headquartered in the U.S.
Now, a Japanese company has been caught in the crossfire.
"The U.S. looks to be blocking more deals now," said Masaki Noda, a partner at the Nishimura & Asahi law firm in Tokyo.