Edward Rubinoff and Henry Terhune of Akin Gump Strauss Hauer & Feld LLP, weigh in on the impacts of the new CFIUS legislation: New CFIUS Reform Act Presents Challenges To Foreign Investment In The United States (The Metropolitan Corporate Counsel, Sept 2007).
CFIUS, of course, stands for the Committee on Foreign Investment in the United States. This is the process by which foreign direct investment (FDI) is vetted for security concerns.
This note has a very short and frank explanation of the ways firms can exploit CFIUS to avoid unwanted competition - highlighted in the excerpt below. These authors fully expect that the new law will expand the opportunities for people interested in issues other than national security to exploit the CFIUS process to derail FDI they don't like:
On one level, FINSA [Foreign Investment and National Security Act of 2007 - Ben] merely codifies many existing CFIUS practices that were informally adopted in response to recent high-profile transactions and congressional concerns regarding how the CFIUS process dealt with them. In many ways, the FINSA amendments to the Exon-Florio law should increase the transparency of the CFIUS process and ultimately lead to greater predictability.
Nevertheless, it is also clear that FINSA makes the CFIUS process more public than before and subject to increased policy and political review by greatly expanding congressional oversight, requiring the consideration of additional factors in assessing the national security implications of a proposed transaction, and expanding the number of agencies potentially involved in CFIUS reviews and investigations. Therefore, the FINSA amendments create new and additional opportunities and avenues for competitors of the parties and/or opponents of a proposed transaction to have an impact on the CFIUS process in order to block or heavily condition a transaction, or dissuade a potential buyer. These new dynamics, in turn, will require CFIUS to be far more proactive and searching in its reviews and investigations, thereby likely resulting in a more formal process covering a greater number of transactions, creating more opportunities for delay, and subjecting more transactions to mitigation agreements. Similarly, the "evergreen" provision for post-clearance re-opening of transactions when and if mitigation agreements are breached results in less certainty regarding the finality of CFIUS determinations and places a premium on parties being accurate, complete and candid in submitting information to CFIUS.
In order to confront the new challenges posed by the FINSA amendments to the Exon-Florio national security process, parties to foreign investment transactions will need to be better prepared before submitting a notice of a proposed transaction to CFIUS. This will include building support for the transaction in advance of the filing by educating stakeholders in Congress, CFIUS, states and communities that the proposed transaction not only does not threaten U.S. national security, but also will not adversely impact a myriad of other concerns, such as jobs, competition, U.S. foreign relations and the environment. Companies contemplating foreign investment transactions should engage knowledgeable, experienced and sophisticated advisors to help develop appropriate strategies - addressing relevant regulatory, policy and political issues - for successfully completing the new, more demanding CFIUS process.
The "CFIUS" link to in the "Categories" list in the left hand column of this blog collects links to a number of CFIUS related items, including appraisals of this year's legislation by trade lawyers from other firms.
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