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Former Oracle board member dogged by links to China-backed chip deal

Fri 16th June, 2017 2:00am
By Liana B. Baker and Michael Flaherty 
    SAN FRANCISCO/NEW YORK, June 15 (Reuters) - As the ultimate 
corporate insiders, board members are presented with plenty of 
opportunities to cash in on their sector knowledge and 
connections. 
    The case of Ray Bingham, until recently Oracle Corp's 
 ORCL.N  second-highest paid board member and executive chairman 
at U.S. chip maker Cypress Semiconductor Corp  CY.O , shows how 
taking advantage of those breaks can backfire. 
    The 71-year old technology veteran helped set up a private 
equity fund backed by China's central government last fall. In 
November, the fund agreed to buy Lattice Semiconductor Corp 
 LSCC.O , another U.S. chip manufacturer, for $1.3 billion - a 
potentially lucrative coup for Bingham.  urn:newsml:reuters.com:*:nL1N1DT0QP 
    But the chip deal is in doubt over U.S. national security 
concerns. On Monday, Lattice and the buyout fund, Canyon Bridge 
Capital Partners, said they submitted the deal for review for 
the third time to the Committee on Foreign Investment in the 
United States (CFIUS).  urn:newsml:reuters.com:*:nL1N1J7005 
    The deal has also cost Bingham personally. His connection to 
Canyon Bridge has forced Bingham, recipient of a 2009 Financial 
Times 'Outstanding Director' accolade, to relinquish two marquee 
board seats in the technology sector because of divergent 
perceptions of whether he faced conflicts of interest in his 
various roles. 
    On Sunday, Bingham resigned from Cypress' board of directors 
after the company's founder and sixth-largest shareholder - T.J. 
Rodgers - sued the Cypress board and launched a proxy contest to 
remove Bingham from the board. Rodgers alleged Bingham faced 
irreconcilable conflicts of interest because of his involvement 
with Canyon Bridge.  
    Bingham, in the Cypress announcement of his stepping down, 
cited this contest as a distraction. It came three months after 
he gave up his seat on Oracle's board of directors due to 
controversy over him moonlighting for Canyon Bridge. 
    "Throughout the process (of joining Canyon Bridge), Ray 
conducted himself with transparency. He discussed his plans to 
join Canyon Bridge with Cypress' board and outside legal 
counsel, who concluded there was no conflict and was given the 
green light to join," a Canyon Bridge spokesman told Reuters. 
Bingham himself did not respond to several requests for comment. 
    Bingham's reputation in the technology industry helped 
clinch the Lattice acquisition for Canyon Bridge, regulatory 
filings show. Bingham was offered a $1.2 million signing bonus 
by Canyon Bridge, a $2 million cut of its management fees and a 
20 percent stake in Canyon Bridge itself. That is in addition to 
the $890,902 in 2016 he received from Oracle, making him the 
second-highest paid board director at the company behind founder 
Larry Ellison, and an annual salary and bonus from Cypress worth 
$900,000, as well as equity grants worth $4.5 million. 
    The income from Oracle and Cypress is now gone because of 
his gamble to align with Canyon Bridge. Bingham continues to 
serve on the board of two other publicly listed technology 
companies, Flex Ltd  FLEX.O  and TriNet Group Inc  TNET.N . 
      
    A COMPROMISING RELATIONSHIP  
    U.S. board members increasingly come from business 
leadership backgrounds. This often presents them with new 
opportunities that come up through existing roles or previous 
corporate relationships. This was the case with Bingham, who had 
done business with China-born U.S. citizen, Benjamin Chow, when 
Bingham worked at private equity firm General Atlantic LLC a 
decade ago. 
    Chow set up Canyon Bridge last summer with funding from 
China Reform Management, a Chinese state-owned investment firm, 
which became Canyon Bridge's sole investor, according to 
Lattice's regulatory filings. For a timeline of events in the 
Lattice deal, click  urn:newsml:reuters.com:*:nL1N1J90ZK 
    Chow approached Bingham last August. He believed that a 
U.S.-based buyout fund with a U.S. partner like Bingham would 
trigger much less scrutiny by CFIUS compared with a Chinese 
buyer, Reuters reported in March.  urn:newsml:reuters.com:*:nL5N1GQ06V  
    Canyon Bridge's Chinese state links, first revealed by 
Reuters in November, were a bone of contention at Oracle. Its 
board told Bingham in March he could not retain his seat and 
continue to be a partner of Canyon Bridge, according to 
Bingham's deposition in Rodgers' lawsuit. In response, Bingham 
decided to step down. 
    "Oracle expressed concern that Bingham's affiliation with 
Canyon Bridge would compromise Oracle's relationship with the 
United States government," Andre Bouchard, the judge presiding 
over Rodgers' lawsuit, said at Delaware's Court of Chancery 
earlier this month, citing Bingham's deposition.  
    Oracle declined to comment. Chow, approached through Canyon 
Bridge, declined to comment. 
     
    A MATTER OF INTEREST FOR THE BOARD 
    Bingham helped Chow set up Canyon Bridge in September and 
October 2016, taking on tasks ranging from setting up calls for 
hiring staff for Canyon Bridge to using Bingham's name, a quote 
from him, and his phone number at Cypress on the press release 
announcing the Lattice deal on November 3, according to 
regulatory and court filings. Bingham was even given signatory 
authority on a $30 million Canyon Bridge bank account.  
    Yet he had not yet formally joined Canyon Bridge, and had 
not let Cypress' board know. 
    On Oct. 20, Bingham contacted Cypress' outside counsel, 
Wilson Sonsini Goodrich & Rosati, to ask if he should tell 
Cypress' board he was considering joining Canyon Bridge, 
according to a regulatory filing from Cypress. Bingham concluded 
there was no need to do so at that time, according to Cypress. 
Wilson Sonsini did not respond to a request for comment. 
    "Clearly this is a matter that would have been of interest 
to the other board members, and the fact that Bingham did not 
come forth with this information prior to that time seems odd,"  
said Alan Seem, a corporate partner at law firm Shearman & 
Sterling LLP who is not involved with the case. 
    On Nov. 4, at a regularly scheduled Cypress board meeting 
and a day after the Lattice deal was announced with his name on 
the press release, Bingham told the board that he was 
contemplating joining Canyon Bridge as a minority partner, 
according to Cypress.  
    At the same meeting, Morgan Stanley  MS.N  gave a 
presentation to Cypress' board in which it identified Canyon 
Bridge as one of the top four most likely acquirers for Cypress 
out of a list of 30 company names.  
    Cypress itself had been approached by Lattice twice in 2016 
about making a potential acquisition offer, most recently last 
September, but it turned both opportunities down, according to 
Cypress. 
    Nonetheless, Cypress said its board concluded there was no 
conflict of interest because there were no active talks or 
considerations about a possible deal with either Lattice or 
Canyon Bridge.  
    But some Cypress board members could see that there was 
scope for future problems.  On Nov. 7, Eric Benhamou, Cypress' 
lead independent director at the time, told another director 
that Bingham's role with Canyon Bridge was "ripe for conflicts 
 of  interest," according to a Cypress regulatory filing. 
    In December, Cypress' board amended the company's code of 
ethics to ensure that if Cypress was having significant 
acquisition talks with a potential target, then any conflicted 
director would recuse themselves. 
    "Duty of loyalty issues are corrosive. They leave investors 
with the impression that the playing field isn't level," said 
Thomas Lys, accounting information and management professor at 
Northwestern University's Kellogg School of Management.     
 
 (Reporting by Liana B. Baker and Michael Flaherty in New York; 
Additional reporting by Greg Roumeliotis in New York; Editing by 
Carmel Crimmins and Edward Tobin) 
 ((Greg.Roumeliotis@thomsonreuters.com; +1 646 223 6022; Reuters 
Messaging: greg.roumeliotis.thomsonreuters.com@reuters.net)) 
 
Keywords: LATTICE M&A/CANYONDBRIDGE BINGHAM
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