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THE LATEST: Further Efforts to Broaden the Scope and Impact for CFIUS Reviews of Foreign Acquisitions of US Businesses

We reported earlier on the Committee on Foreign Investment in the United States (CFIUS) and its legal and practical authority to review M&A transactions for possible risks to US national security posed by foreign ownership of a US business. Sens. Cornyn (R-TX) and Schumer (D-NY) reportedly are working separately on legislation to strengthen CFIUS, which could directly affect some cross-border M&A. Sen. Cornyn’s proposed changes to CFIUS would target Chinese technology investments while Sen. Schumer’s bill would encourage CFIUS to look at economic implications as part of its review.  These legislative efforts follow a bipartisan Congressional request in late Fall 2016 for the Government Accountability Office (GAO) to update its periodic analysis of CFIUS, urging the GAO to evaluate the possible expansion of factors considered by CFIUS in its M&A reviews to cover investment reciprocity and net economic benefits.

WHAT HAPPENED:
  • Now Sen. Debbie Stabenow (D-MI) and Sen. Chuck Grassley (R-IA) have introduced legislation that would add the Secretary of Agriculture and the Secretary of Health and Human Services as voting members of CFIUS. The bill would also direct CFIUS to consider matters of food security, access and safety when it reviews overseas acquisitions of US firms.
  • Though CFIUS may already consider food security as an element of national security, the new proposal would at a minimum enhance this factor. Stabenow said in a statement introducing the bill, “As foreign entities continue their aggressive acquisitions of US food and agriculture companies, it’s imperative that these transactions face additional scrutiny.”
WHAT THIS MEANS:
  • More broadly, the bipartisan legislative activity suggests an increased likelihood that CFIUS reform will gain traction in the Congress. Further support for broadening the scope and force of CFIUS may come from the Trump Administration, which would be consistent with its “America first” trade policy.
  • Any businesses with planned or pending cross-border M&A activity in the US, including those in the agribusiness sector, should monitor these developments.



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THE LATEST: National Security Reviews of Foreign Ownership May Broaden

The Committee on Foreign Investment in the United States (CFIUS, commonly pronounced “syphius”) reviews M&A transactions that may pose a risk to national security through foreign control of a US business.  (See our recent article).  CFIUS is composed of members from the Departments of Treasury (chair), Homeland Security, State, Defense and other agencies.  It has the power to recommend to the President that a transaction be stopped, and is well known for its reviews of the Dubai Ports World and IBM/Lenovo deals, both of which it approved (though the former was terminated because of strong political opposition).  By law, its process is fairly secretive, although it holds itself to tight deadlines for issuing final recommendations.

WHAT HAPPENED:
  • As reported February 21, Senators Cornyn (R-TX) and Schumer (D-NY) are separately working on legislation that would strengthen CFIUS’ hand in reviewing proposed acquisitions.
  • In the face of skyrocketing investment by Chinese companies in US firms, Senator Cornyn’s bill would require CFIUS to look harder at proposed Chinese acquisitions of US technology companies.
  • Reportedly, Senator Schumer’s bill would take a different tack, requiring CFIUS to consider economic implications in addition to national security concerns as part of its review. Currently CFIUS’ mandate is restricted to considering national security issues that may include national defense, technological leadership, critical infrastructure, foreign government influence and export controls compliance.
WHAT THIS MEANS:
  • Companies considering sensitive cross-border transactions involving US business should watch any proposed legislation closely.
  • The Trump Administration has not yet addressed these specific legislative ideas, but President Trump may be likely to support legislation that furthers his “Buy American, Hire American” theme.
  • Currently CFIUS can initiate review of a deal either by voluntary disclosure from the parties or on its own initiative, even post-closing. Thus, any legislation that broadens CFIUS’ mandate or that alters the voluntary nature of self-notifying, could add a significant regulatory burden to cross-border transactions.
  • CFIUS’ current investigative timeline of 30 days (initial review) plus 45 days (investigation if concerns exist) looks unlikely to change and will continue to provide some regulatory certainty for parties.



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ABA Panel Tackles Meeting M&A Client Expectations

Recently the American Bar Association Section of International Law in partnership with the International Association of Young Lawyers (AIJA) held a conference entitled “Successful Transactions – What In-House Counsel Expect from their M&A and Antitrust Attorneys.”  The conference provided parallel tracks in M&A and Antitrust with the focus of providing attendees a better  understanding of issues in-house counsel face during an M&A transaction.

The opening session focused on the importance of project management.  The panel consisted of outside counsel, in-house counsel and a consultant.  The session started with the notion that clients find that outside counsel generally fall short on project management during M&A transactions.  According to the panel, the key to project management is to manage and set realistic client expectations at the outset of any transaction.  To provide clients with accurate expectations, outside counsel recommend having a kick-off meeting with the client to discuss the transaction’s structure, the applicable jurisdictions, the regulatory environments and the competitive nature of the industry, and to assess the client’s resources and risk tolerance.  The antitrust attorneys also stressed the importance of involving antitrust counsel at the beginning of a transaction.  Involving antitrust attorneys early can help most significantly with timing and expense.  The most significant example of this is a second request.  If antitrust counsel knows the facts of the transaction early he or she can assess the likelihood of the client receiving a second request which can affect cost, timing and ultimately a client’s willingness to continue pursuing the transaction.

To continue to manage the transaction the panel recommended that the lead M&A and antitrust counsel facilitate the following logistical tasks – coordinate efforts to gather and distribute information, set priorities and track work streams, identify and report back to the client on key issues and reevaluate priorities and strategy with clients as the matter develops.

In conclusion, the panel advised attendees that the best way to avoid project management failure is to be organized and communicate with the client and co-counsel.  Under that framework the panel recommended that attorneys clearly define the scope of work, establish clear priorities, track the timeline and budget of the transaction, participate in transparent project planning, provide clear and timely reports, and be prepared for forward- looking legal issues like gun-jumping and other transaction-related issues.




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