Imagination stuck in battle between Apple and China

A state-owned Chinese company has bought a stake in Imagination Technologies, sparking speculation the British tech firm could become the target of a tug of war between Apple and the Chinese government.

Tsinghua Unigroup, which has a $47 billion (£32.6 billion) war chest as part of its bid to become the world’s third-biggest semiconductor designer, has taken a 3% stake in embattled Imagination, the company behind the graphics technology for iPhones.

Apple admitted in March that it had been in takeover talks with the Hertfordshire-headquartered company, in which it has an 8.3% stake, before deciding against making an offer. Analysts immediately suggested Tsinghua’s move could force America’s biggest company to come back to the table and caused Imagination shares — which were relegated from the FTSE 250 last year — to jump 20.5p, or 14%, to 171.5p.

“Tsinghua’s stake could ignite a sale process as we believe Apple is unlikely to want Imagination’s technology to go to China,” Liberum’s Eoin Lambe said.

Apple, which cannot make a bid until September under UK takeover rules, and Imagination, which is worth nearly £500 million, both declined to comment on the speculation.

Tsinghua’s $23 billion takeover bid for America’s Micron was blocked by the US government last year for national security reasons. And this February it pulled the plug on a bid to become the controlling shareholder of US computer storage group Western Digital after the US authorities flagged it for investigation.

Despite a slight recovery this year, Imagination shares have still fallen 24% over the past six months — a side-effect of slowing sales of the iPhone, especially in China.

Imagination already has deals with Spreadtrum and RDA Microelectronics, two chipmakers bought in 2013 by Tsinghua.

Shares in ARM Holdings, another Apple supplier based in the UK, rose 13p, or 1.4%, to 944p.