CFIUS and Antitrust

Neal R. Stoll and Shepard Goldfein discuss the importance of coordination between the antitrust and CFIUS teams - particularly in light of the recent reform of the CFIUS process (the process the U.S. uses to vet foreign direct investment for national security implications) in this year's Foreign Investment and National Security Act (FINSA):  Post-FINSA Coordination of Antitrust, CFIUS Practitioners  (New York Law Journal, September 19, 2007):

Antitrust practitioners involved in international mergers and acquisitions might want to take note of this development. FINSA increases the likelihood of CFIUS scrutiny of transactions with national security implications. Thus, antitrust attorneys should be aware of the logistical implications of a CFIUS review or investigation, such as the effect on timing, "best efforts" and other provisions in the merger agreement. More generally, however, a transaction's antitrust team may wish to coordinate its efforts with the CFIUS team on an ongoing basis. Indeed, the argument that a transaction has minimal impact on national security is often bolstered by the proposition that the parties lack market power. Thus, a joint effort by the antitrust and CFIUS teams in exploring market-related issues makes sense for reasons of both efficiency and tactics.

Here's a longer extract:

FINSA makes it more crucial than ever for antitrust practitioners to spot and raise the issue of filing a CFIUS notice in transactions placing a foreign entity in control of a U.S. firm. The antitrust team can then refer such transactions to the CFIUS team for a FINSA analysis.

If the parties elect to file a CFIUS notice, the antitrust team should then pay particular attention to timing. The CFIUS waiting periods are not synchronized with the HSR timeline....

The antitrust and corporate deal teams should also make sure to include the CFIUS team when hammering out certain provisions in the merger agreement such as closing conditions, "best efforts" provisions, and the definition of a material adverse event. For example, the parties to a transaction could find themselves facing unexpected complications under a merger agreement that defines divestitures pursuant to antitrust consent agreements as material adverse events, but is silent about similar divestitures under a CFIUS mitigation agreement.

More generally, efficiency and tactical concerns warrant ongoing cooperation between the antitrust and CFIUS teams. For example, when the CFIUS team conducts its preliminary analysis to determine whether to file notice, it examines the effect of the transaction on national security. Implicit -- or explicit -- in this analysis (and in any later arguments to the committee) is whether the parties have market power. For example, a transaction that involves "critical infrastructure" but is between parties with very small market share is less likely to warrant suspension, prohibition or other remedies under FINSA. The antitrust team obviously has resources and expertise to share in this analysis. Market dynamics pose another set of issues crucial to the analyses and arguments of both antitrust and CFIUS teams. For example, the CFIUS team might argue to the committee that the role of foreign firms in the U.S. supply chain is limited: the antitrust team may analyze this same issue for its own purposes. Sharing information and analyses between the teams eliminates parallel and possibly redundant efforts. And as a matter of tactics, such cooperation ensures the teams do not make inconsistent or opposing arguments -- asserting, for example, a larger market definition for antitrust purposes and a much smaller one in arguments to the CFIUS.

Comments

[Chris Monasterski]

Dear Ben,

As a reader of your site I thought you might be interested in the launch of the World Bank Doing Business 2008 report, which compares 178 countries from Afghanistan to Zimbabwe on the ease of doing business.

You can access the dialogue through the PSD blog (http://psdblog.worldbank.org) or the IFC website at (http://ifc.org/ifcext/media.nsf/Content/Doing_Business_2008)

Warm regards,

Chris Monasterski