Foreign Investment in the United States: Don’t Let CFIUS Unwind Your Deal!

August 2, 2017Legal Alerts

It's a quiet Friday afternoon edging uneventfully toward the end of the day when a client calls:  they’re interested in acquiring a U.S.-based widget maker.  After your internal conflict check clears, reality hits – what do you do now? 
Whether your client is a foreign (non-U.S.) business targeting a U.S.-based company, or the U.S. target of a foreign purchaser, your deal may have Committee on Foreign Investment in the United States (CFIUS) implications.  
CFIUS is an often overlooked component of international M&A practice that involves a U.S. government review of the national security implications of foreign direct investment in the United States.  From contractual relationships between subsidiary companies to the proximity of a potential target’s physical assets to U.S. military installations, proposed investments and transactions involving U.S. entities can be a potential minefield of CFIUS implications. 
Things to consider:

  • Voluntary Filing:  Filing a notice of transaction with CFIUS is a voluntary process.  However, CFIUS has broad powers to mitigate potential risks to national security, up to and including the ability to unwind a transaction where it poses a threat to national security.  Absent notification and corresponding approval, this power to unwind never expires.
  • “Control” is Key: CFIUS jurisdiction can be invoked by even a minority investment in a U.S. company.  The Committee looks at a number of factors in determining whether a foreign company has “control” over a U.S. company, including the ability to sell assets or reorganize, the ability to hire or fire employees, and control over U.S.-based facilities. 
  • Government Contracts, Security Clearances, and Export Control: Does your company or the target company have contracts with governmental entities?  Does the target produce export controlled goods?  Does your target hold a facility clearance or do its employees hold security clearances? 
  • Governmental Applications:  Does the target produce technology or products used in governmental applications?  Keep in mind component manufacturers could still trigger national security concerns. 
  • Consider Your Surroundings:  The target facilities’ proximity to a U.S. military installation or critical infrastructure site could raise CFIUS’ interest.   
  • Review Period:  The initial CFIUS review period is 30 days.  Many proposed transactions can be cleared during this initial review period without additional investigation or mitigation steps.    
  • Safe Harbor Letter:  Gaining CFIUS approval for a proposed transaction means CFIUS cannot come back and retroactively impose mitigation steps or worse, unwind an already consummated deal.

Recent CFIUS Experience:

Dinsmore & Shohl is uniquely positioned to guide companies through the CFIUS process.  We take a proactive, cost-conscious approach to reviewing deals for potential CFIUS implications. Our attorneys understand the CFIUS process and work with CFIUS reviewers to answer questions about the transaction in an efficient and easy-to-understand manner.  Our attorneys have recently handled a variety of transactions that potentially implicate CFIUS including:

  • A foreign government-owned corporation’s purchase of a U.S. technology company (Filed for and gained CFIUS approval).
  • A foreign corporation’s purchase of a U.S. professional services firm (Filed for and gained CFIUS approval). 
  • A publicly-traded foreign corporation’s purchase of a U.S. component manufacturer (Filed for and gained CFIUS approval; provided mitigation guidance). 
  • Advisory opinions on the applicability of CFIUS to proposed transactions.

From a $100 million complex transaction of a component parts manufacturer to the acquisition of a technology subsidiary generating hundreds of thousands of dollars, our attorneys have helped guide clients through the information gathering, submission and review process on time and on budget.  Our attorneys also demonstrate an ability to work swiftly and efficiently with deal teams on accelerated M&A schedules.
CFIUS’ History and Jurisdiction:
CFIUS in an inter-agency committee – comprised of members from the Departments of Treasury, Justice, Homeland Security, Commerce, Defense, State and Energy, and Offices of the U.S. Trade Representative and Science & Technology Policy.  Various other governmental entities “observe” the CFIUS process and participate as necessary. 
While there are a number of U.S. government entities that review and regulate foreign investment in the United States, CFIUS has the broadest mandate over foreign acquisitions of U.S. companies. 
The Committee’s mandate is broad and it is charged with reviewing all “covered transactions”  - defined as “a transaction which, irrespective of the actual arrangements for control provided in the terms of the transaction, results or could result in control of a U.S. business by a foreign person.”  In reviewing a transaction, CFIUS reviews the transaction’s impact on the “national security” (an undefined term).
Companies have the option to file a notification of their proposed transaction for CFIUS approval.  CFIUS, after reviewing a notice of the proposed transaction, will either:

  • approve the transaction;
  • engage in an investigation of the proposed transaction;
  • require measures to mitigate the effects of foreign control; or
  • recommend to the President that the transaction be blocked or unwound.

Because the President’s final decision on a transaction is final, companies with transactions that are potentially covered by CFIUS should seek experienced CFIUS guidance.