CFIUS Regulations for Foreign Investment in the U S Investment in - - PowerPoint PPT Presentation

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CFIUS Regulations for Foreign Investment in the U S

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Investment in the U.S.

Leveraging Lessons Learned One Year After the New FINSA Requirements

A Li 90 Mi t T l f /W bi ith I t ti Q&A

Today's panel features: Clay Lowery, Managing Director, The Glover Park Group, Washington, D.C. Nova J. Daly, Public Policy Consultant, Wiley Rein, Washington, D.C. F h d J li P t K S h l W hi t D C

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Farhad Jalinous, Partner, Kaye Scholer, Washington, D.C.

Thursday, March 25, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific 10 am Pacific

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CFIUS Notices: Lessons Learned CFIUS Notices: Lessons Learned One Year Under the FINSA Regulations

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Presented by: Farhad Jalinous

Net Value

• The FINSA regulations ask for a “good faith approximation of the net value of

the interest acquired in the U.S. business in U.S. dollars, as of the date of the notice.” (31 CFR 800.402(c)(1)(viii))

• Net value may involve more than just the purchase price of the U.S.

business, e.g., assumed debt, post-closing payments, etc.

• This information is primarily used by the Department of Commerce for

This information is primarily used by the Department of Commerce for statistical purposes and to assess the proposed transaction relative to other transactions.

• “Good faith approximation” has been treated broadly and CFIUS has been

relatively flexible with the estimation methods used by parties.

• Even if CFIUS certifies a notice and begins the 30-day review, it may ask

follow-up questions during the review regarding the value of the U.S. business being acquired and the methodology for the determination being acquired and the methodology for the determination.

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Methodology to Determine Market Share

• The regulations require information regarding the activities of the U.S.

business being acquired, including an estimate of U.S. market share and “the methodology used to determine market share …” (31 CFR 800.402(c)(3)(i))

• Market share information allows CFIUS to assess the scale of the proposed

transaction.

• A transaction that results in a foreign person acquiring a substantial market
• A transaction that results in a foreign person acquiring a substantial market

share can present a risk to national security.

• Has the accumulation reached a “tipping point” to present a national

security concern? security concern?

• CFIUS has been flexible in evaluating the methodologies used to estimate

market share.

• The market share information is usually more readily available for

transactions requiring Hart-Scott-Rodino filings.

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Government Contracts

• Prior to FINSA, the regulations asked for information about the U.S. business’

classified contracts (going back five years) and unclassified contracts with U.S. Government agencies with national defense responsibilities (going back three years). years).

• The FINSA regulations changed the information request for unclassified U.S.

Government contracts to include those with a “United States Government agency or component with national defense, homeland security, or other ti l it ibiliti i l di l f t ibilit it national security responsibilities, including law enforcement responsibility as it relates to defense, homeland security, or national security.” (31 CFR 800.402(c)(3)(iv))

• Contracts with a “U S Government agency” can include state and local
• Contracts with a U.S. Government agency can include state and local

government agencies.

• The regulations also ask for the number of contracts and orders that are subject

to the Defense Priorities and Allocation System (DPAS) regulations, including y ( ) g , g their DPAS ratings (DO or DX), as well as the acquiring entity’s plan to ensure compliance with the DPAS regulations after closing.

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Articles/Services Under Development

• The regulations ask whether the U.S. business being acquired produces or

trades in “… articles and services (including those under development) that may be designated or determined in the future to be defense articles or defense ser ices p rs ant to 22 CFR §120 3 ” (31 CFR 800 402(c)(4)(ii)) defense services pursuant to 22 CFR §120.3.” (31 CFR 800.402(c)(4)(ii))

• This is a significant expansion of the pre-FINSA regulations, which asked

whether the U.S. business produced defense articles or defense services d th ITAR under the ITAR.

• The FINSA regulation is very broad, and notably includes products and

services that may be designated or determined in the future to be subject to th ITAR the ITAR.

• Despite significant concerns that this would be a very burdensome and

problematic requirement, so far it has not proved to be a significant issue in g reviews.

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Personal Identifier Information

Th l i i “ l id ifi i f i ” b b i d f h

• The regulations require “personal identifier information” to be submitted for the

directors and senior management officials of the acquiring entity and all of its parent companies.

• “For each member of the board of directors or similar body (including external directors) and
• For each member of the board of directors or similar body (including external directors) and
• fficers (including president, senior vice president, executive vice president, and other persons

who perform duties normally associated with such titles) of the acquiring foreign person engaged in the transaction and its immediate, intermediate, and ultimate parents, and for any individual having an ownership interest of five percent or more in the acquiring foreign person engaged in the transaction and in the foreign person's ultimate parent...” (31 CFR 800 402( )(6)( i)) 800.402(c)(6)(vi))

• Personal identifier information consists of: full name (and all other aliases used),

business address, country and city of residence, date and place of birth, SSN, national identity number information, passport and visa information, and details national identity number information, passport and visa information, and details about foreign military and government service.

• Personal Identifier Information is submitted to CFIUS separately from the Notice.
• A curricula vitae or professional synopsis must also be submitted for each of these
• A curricula vitae or professional synopsis must also be submitted for each of these
• individuals. (This is submitted with the notice.)
• Preparing the personal identifier information can be very time-consuming and is

frequently the biggest cause for delay—on the buyer’s side—in completing a ti

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notice.

Treasury Guidance on Transactions Presenting National Security Considerations

• In December 2008, the Treasury Department issued “Guidance Concerning the National

Security Review Conducted” by CFIUS. (73 Fed. Reg. 74,567) The Guidance concerned the types of transactions CFIUS had reviewed that presented

• The Guidance concerned the types of transactions CFIUS had reviewed that presented

national security considerations.

• The Guidance defines “national security considerations” as “facts and circumstances,

with respect to a transaction, that have potential national security implications and with respect to a transaction, that have potential national security implications and that therefore are relevant for CFIUS to analyze in determining whether a transaction threatens to impair U.S. national security, i.e., whether the transaction poses ‘national security risk.’”

• If a transaction presents national security considerations it does not necessarily
• If a transaction presents national security considerations, it does not necessarily

mean that CFIUS will determine it presents a risk to national security or that the transaction will be blocked.

• The Guidance emphasized that CFIUS is only concerned with “genuine national security

concerns raised by a covered transaction,” not other national interests.

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Guidance on Transactions Presenting National Security Considerations (Cont’d)

• The Guidance outlined the threat and vulnerability analysis CFIUS conducts

for its national security assessment.

• Threat: “whether a foreign person has the capability or intention to exploit or

cause harm.”

• Vulnerability: “whether the nature of the U S business or its relationship to
• Vulnerability: whether the nature of the U.S. business, or its relationship to

a weakness or shortcoming in a system, entity, or structure, creates susceptibility to impairment of U.S. national security.”

• There are also statutory factors CFIUS must consider in assessing a proposed
• There are also statutory factors CFIUS must consider in assessing a proposed

transaction’s threat to national security.

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Nature of U.S. Business (Vulnerability)

• The U.S. business provides products and services as a prime contractor,

subcontractor or supplier to federal agencies and/or state and local government authorities. In particular, if the U.S. business is engaged in: Cl ifi d k

• Classified work;
• Defense, security, or national security-related law enforcement sectors;
• Weapons and munitions manufacturing, aerospace, or radar systems

industry segments; or

• Businesses otherwise relevant to national security, such as energy,

telecommunications, information technology, national resources, and industrial products. Th U S b i i t f U S iti l i f t t i l di

• The U.S. business is part of U.S. critical infrastructure, including:
• Energy;
• Transportation; and
• Financial systems
• Financial systems.
• The U.S. business is engaged in the research and development, production,
• r sale of technology, goods, software, or services subject to U.S. export

controls

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controls.

Identity of the Foreign Investor (Threat)

• Foreign government-controlled transactions.
• The specific foreign government and its relationship with the United States

d hi t ith d t ti l it tt and history with regard to national security matters.

• CFIUS also examines the nature of the business and its management to

determine its relationship with, and degree of independence from, the f i foreign government.

• The foreign person’s intentions (e.g., to terminate the U.S. business’ U.S.

Government contracts) and track record on issues relevant to national security security.

• In exceptional cases, a corporate reorganization that results in a change of
• wnership of the U.S. business can present national security considerations.

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CFIUS Strategy: More Than A Legal Approach

March, 2010

Importance of an Integrated Public Affairs Strategy p g gy

• An integrated public affairs strategy is critical in today’s fluid and

volatile political environment. Deals may pass CFIUS review but be overwhelmed by a negative political reaction.

• A cohesive message and outreach strategy across all audiences

helps anticipate and address issues and concerns.

C id ll di CFIUS Whi H C d

• Consider all audiences: CFIUS, White House, Congress, state and

local officials, investors, media, customers and employees are all critical.

• Preparation is key. It’s too late to start thinking about public

messages once the deal is announced. g

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When Is A “Legal Strategy” Not Enough?

• Threats
• Country of origin
• Interaction of company to country
• Subsidies and Jobs

V lnerabilities

• Vulnerabilities
• Critical infrastructure – particularly telecoms and IT
• Controlled technology
• Controlled technology
• Government contractors

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Creating and Executing the Public Affairs Strategy g g gy

Create the Best Plan for the Conduct the Deal

Engage the public

Announcement Outreach

Engage the public affairs team early Anticipate opposition, criticism Augment arguments Emphasize public benefits Quiet outreach Tell your narrative first criticism Determine foreign areas of interest benefits Create consistent message M it t l first Outreach to key audiences E ti d Catalogue arguments Soft sound Monitor external environment Prep executives Ensure continued dialogue Rapid response

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Cases Gone Wrong – Any Common Threads? CNOOC & Dubai Ports World & P.O. Ports CNOOC & UNOCAL Firstgold & h Northwest

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Cases Gone Right: Dubai International Capital

Deterring Harmful Congressional Action as Regulators Investigated a Foreign Acquisition

CHALLENGE

• With the Dubai Ports World purchase of U.S. port operations

collapsing under widespread and bipartisan Congressional criticism, Dubai International Capital (DIC) needed immediate help salvaging its di i iti f A i d f t t

• wn pending acquisition of an American defense contractor.
• Next in line for investigation by CFIUS, DIC was already the target of

hostile media and Congressional interest when it reached out for strategic counsel. SOLUTION

• Quickly huddled with counsel for both parties to the acquisition and

mapped out a legislative strategy to complement the legal and regulatory efforts that had been undertaken to date.

• Educated Congressional leaders, committee chairmen and other

respected Members about the transaction, in order to establish a “firewall” against the possible proliferation of early criticisms into another political meltdown.

• Engaged hostile Members and other skeptics directly and through

local stakeholders, and orchestrated a Congressional site visit to the U.S. contractor’s production facility. RESULTS

• Engaged swiftly and transparently by DIC’s messages, executives and

new U.S. constituencies, Congressional opinion leaders signaled tacit support and critics backpedaled from previously hostile positions.

• DIC’s acquisition obtained CFIUS and Presidential approval within the

standard timeframe for such regulatory investigations.

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Cases Gone Right: AMD

Working with CFIUS and Congressional Leaders to Gain Approval of a Multi- Working with CFIUS and Congressional Leaders to Gain Approval of a Multi- Billion Dollar Foreign Investment

CHALLENGE

• In investments totaling up to more than $8 billion, AMD and

its partner, the Advanced Technology Investment Company (ATIC) f Ab Dh bi d th ti f (ATIC) of Abu Dhabi, announced the creation of GLOBALFOUNDRIES – a leading-edge chip manufacturing company which plans to build a state-of-the-art facility in upstate New York. In addition, Mubadala Development Company, an investment company based in Abu Dhabi, will increase its investment in AMD to 19 9% increase its investment in AMD to 19.9%. SOLUTION

• Developed and executed an integrated announcement plan

spanning government relations, corporate communications, investor relations, as well as customer and employee investor relations, as well as customer and employee communications. RESULTS

• The transaction closed in the first quarter of 2009 following

CFIUS clearance, SEC approval, and the transfer of the pp upstate New York incentives package among other regulatory approvals.

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The Glover Park Group

WHO WE ARE

Veterans of business government law Veterans of business, government, law, academics, political campaigns and policymaking

WHAT WE DO

Integrated corporate image and reputation management campaigns targeted towards decision makers and

• pinion leaders

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