The Committee on Foreign Investment in the United States'
("CFIUS") recent annual report to Congress signals that
the CFIUS review process may become a longer pole in the tent for
corporate transactions involving the acquisition of sensitive U.S.
businesses by foreign persons. Not only have a higher percentage of
CFIUS notices gone to the additional 45-day investigation period,
but CFIUS also has ramped up its use of measures to mitigate
national security concerns. As a result, foreign persons seeking to
acquire U.S. businesses that raise national security or critical
infrastructure concerns should factor the CFIUS review process into
both the timing of the deal and the analysis of its overall benefit
and value.
CFIUS is an interagency committee of the U.S. government granted
the authority to review proposed transactions when a foreign person
will acquire control of a U.S. business. As a practical matter,
CFIUS is most interested when the possible deal raises national
security or critical infrastructure concerns. CFIUS also is
authorized to impose and enforce agreements or conditions to
mitigate such concerns. The CFIUS process begins when parties to a
potential transaction prepare and submit a joint voluntary notice
to CFIUS, which initiates a 30-day review period. After the initial
review, CFIUS will clear the transaction or commence an additional
45-day investigation. At the end of the 45-day period, CFIUS clears
the transaction or, if it is determined that national security
risks have not been mitigated, forwards the notice to the
President, who has 15 days to prohibit, suspend, or clear the
transaction.
According to an unclassified version of a February 2015 report to
Congress, during 2013, CFIUS conducted reviews of 97 notices of
covered transactions. This is a decrease from the two prior years,
during which CFIUS conducted reviews of 111 and 114 notices of
covered transactions, respectively. Of the 97 notices reviewed
during 2013, nearly half went to the additional 45-day
investigation period. This is up from prior years 2009 to 2012,
when notices sent to the 45-day investigation phase were
consistently below 40 percent. Some of the 2013 increase was due to
the October 2013 U.S. government shutdown. Setting those cases
aside, the number of notices that took an additional 45 days to
clear CFIUS increased to 44 percent during 2013.
The report also details an increased use of measures to mitigate
national security or critical infrastructure concerns in connection
with those 97 notices reviewed by CFIUS. Specifically, CFIUS
reported using mitigation measures in 11 transactions during 2013,
which equals approximately 11 percent of notices reviewed. This is
up from 2010 to 2012, when mitigation measures were used in
approximately eight percent of the transactions. In addition, the
report identifies a new, more aggressive mitigation measure used
during 2013, which grants the U.S. government the ability to review
and object to certain business practices if they raise national
security concerns. Parties to a transaction should take this more
aggressive mitigation approach into account while assessing the
costs and benefits of a particular transaction.
As a result of these changes, foreign parties contemplating
investments in sensitive U.S. businesses should plan for CFIUS to
play a more prominent role in the process, including the time it
might take to complete a deal, and the potential of having to
negotiate and enter into mitigation measures with CFIUS. The most
effective approach is to anticipate potential issues and take steps
to address them.
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