CFIUS

Author: Keith Martin Publication | October 2017

A Chinese acquisition of a US company was blocked in September.

President Trump issued an executive order on September 13 barring a proposed acquisition of Lattice Semiconductor Corporation by a Chinese-owned US investment vehicle called Canyon Bridge Merger Sub., Inc. The ultimate parent of the buyer is China Venture Capital Fund Corporation Limited.

CFIUS had recommended blocking the deal on national security grounds. CFIUS—short for the Committee on Foreign Investment in the United States—is an interagency committee of 16 federal agencies, headed by the Treasury Department, that reviews potential foreign investments in US companies.

Lattice and Canyon Bridge reportedly withdrew and refiled their notices of the deal to CFIUS as many as three times in an unsuccessful effort to try to address the national security issues.

This is only the fourth time a president has blocked an acquisition in the 27 years since CFIUS was established.

President Obama blocked a proposed Chinese acquisition of another US semiconductor firm, Aixtron, Inc., in December 2016, and he ordered Chinese-backed Ralls Corporation in September 2012 to divest itself of the rights to four wind farms that Ralls bought from Greek company Terna Energy. At least one of the four projects was near a US Navy base that trains pilots of drone aircraft. (For more details about the Ralls case, see “CFIUS” in the December 2013 and "CFIUS" in the November 2015 NewsWires.)

Meanwhile, CFIUS reported to Congress in late September on its actions during 2015.

Foreign companies submitted 143 proposed acquisitions of US companies to it for review.

Close to half (66) went into an investigation phase. CFIUS required mitigation measures in 11. Thirteen proposed deals were withdrawn. Nine of these were resubmitted with revised terms. Three transactions were permanently withdrawn because the parties could not come up with mitigation measures to address the national security concerns. One was withdrawn for commercial reasons.

CFIUS rejected one notice because the US government had information that suggested the filing was inaccurate. The parties did not resubmit the transaction for review.

Looking over a broader period of 2009 through 2015, there has been a general increase in number of filings, but CFIUS said this appears due to macroeconomic reasons rather than any other discernible trend. Over the entire period, 40 percent of filings moved into an investigation phase and 7 percent of proposed deals were withdrawn.

Submission of proposed deals is voluntary. However, the committee has authority to set aside transactions after the fact that were not submitted for review.

Review takes 30 days. Transactions that raise potential issues then move into an investigation phase that takes another 45 days.

The report lists as potential areas of concern investments in US companies that have access to classified or sensitive US government information and acquisitions by foreign companies that are controlled by a foreign government, especially where the foreign country has a poor record on nuclear non-proliferation or other national security matters or the country has a coordinated strategy of trying to acquire critical US technologies. Concerns are also present in acquisitions of projects with offtake contracts with federal, state or local government agencies that have functions related to national security, and projects that “involve various aspects of energy production, including extraction, generation, transmission, and distribution” or that are near US military bases or other sensitive US government facilities.

The committee makes recommendations. The president has ultimate authority to block a transaction. Presidential action to block a transaction is rare.

Most transactions that raise problems are voluntarily withdrawn. Many are later resubmitted on revised terms. In some cases, transactions are approved after the acquirer agrees to mitigation measures.

CFIUS reports annually to Congress.

In 2015, 15 percent of proposed acquisitions brought to the attention of CFIUS were in the “mining, utilities and construction” sectors. The majority (11 of 21) involved electric power, transmission or distribution.

Filings in 2015 were concentrated among buyers from the following countries: China (29), Canada (22), the United Kingdom (19), Japan (12), France (8), Cayman Islands (8), Holland (5) and Australia (4). The few filings by buyers in the Middle East were from Saudi Arabia (1), Turkey (2) and the United Arab Emirates (1).

Most of the power industry transactions involved buyers from China and Canada.


Contacts

Keith  Martin

Keith Martin

Washington, DC