Security Factors Delay Sale of Ceramics Firm

WASHINGTON —  A U.S. ceramics-manufacturing company that was to have been sold to a Japanese chlorine-producing firm has shelved the deal temporarily after indications that the Bush Administration was preparing to block the takeover on national security grounds.

U.S. officials said the American firm, General Ceramics of Haskell, N.J., has agreed to revamp the offer to exclude a component that reportedly has been manufacturing parts for nuclear weapons under a contract with the Energy Department. The department apparently uses General Ceramics products at its plant in Oak Ridge, Tenn.

The company had been scheduled for acquisition by Tokuyama Soda of Tokyo for $59.3 million.

Signaled Firms

The unusual step came after the sub-Cabinet-level Committee on Foreign Investment in the United States signaled both firms earlier this week that it was inclined to recommend that President Bush take legal action to stop the purchase.

The action was the first such step that the investment-review panel has taken under powers provided by last year’s Omnibus Trade Act. The law gives the President authority to seek a court injunction to prevent any foreign takeover that might endanger national security.

The move will not necessarily doom the sale. U.S. officials expressed optimism that if the companies work out a deal that does not involve General Ceramic’s sensitive operations, it will probably be approved.

It was not immediately clear, however, whether the two firms would be able to agree on a new arrangement very quickly. The original transaction called for stockholders of General Ceramics to receive $18 a share.

The decision to prod the companies to withdraw the deal on their own rather than face possible legal action was part of an effort by the Administration to keep the government’s profile in the investment-review process low-key.

Although the procedure has been in place since the mid-1970s, when it was imposed to guard against buyouts by Arab oil interests, the Administration is leery about appearing to impede--or even screen--ordinary purchases of firms by foreigners.

“We don’t want to discourage foreign investment here,” one official said.

The sub-Cabinet-level panel rarely, if ever, has sought to block a sale. Usually, it has had only to voice its objections and allow the companies involved in the transaction to scotch the deal themselves.

Ball-Bearing Plant

The last major incident came in 1985, when the Pentagon raised objections to the proposed sale of New Hampshire Ball Bearings, a manufacturer of defense-related products, to the Minebea ball-bearing company of Japan.

The year before, Fujitsu of Japan withdrew a bid to acquire Fairchild Semiconductor after then-Commerce Secretary Malcolm Baldrige challenged the wisdom of the deal.

The trade law enacted last summer boosted the panel’s power by giving the President authority to take court action to block a sale. As a result, the panel’s caseload has increased markedly. Until the Tokuyama deal, however, it had approved all sales it considered.