Foreign M&A Delayed More Often by U.S. Review

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By Llewellyn Hinkes-Jones

Heightened national security concerns are forcing longer reviews of cross-border deals involving U.S. companies and requiring businesses to file notices multiple times, a Bloomberg Law analysis shows.

The extended reviews — caused in part by a rising caseload over the past decade and more complex tech deals — began in the Obama administration and have continued this year. The delays have prompted more companies to terminate deals midway through the process or withdraw to refile later.

Ant Financial Group became the latest to scuttle a deal when it abandoned its purchase of MoneyGram International Inc. this month after the Committee on Foreign Investment in the United States (CFIUS) said it posed national security problems. CFIUS’s investigation lasted more than a year, well beyond the allotted 75-day period.

“The process is supposed to be expeditious, but companies are often obliged to withdraw and refile to restart the clock so that CFIUS can continue its deliberations,” said Rod Hunter, a Washington-based partner with Baker McKenzie who previously helped supervise the national security reviews conducted by CFIUS. “If it’s too belabored, the parties may walk away.”

CFIUS is a multi-agency panel headed by the Treasury Department that’s responsible for vetting foreign transactions that raise national security concerns. Chinese investments in the U.S. are drawing particular scrutiny recently, as lawmakers and administration officials worry that Chinese companies are gaining access to valuable U.S. intellectual property.

Part of the reason for the longer reviews is that CFIUS’s investigative load has increased. “In 2007, approximately 4 percent of cases went to investigation,” said Heath Tarbert, the Treasury Department’s assistant secretary for international markets and investment policy. “In 2017, approximately 70 percent did.” Investigations mean more legwork for the committee, which requires more resources.

The number of cases in which CFIUS determines that mitigation or prohibition is necessary to address national security concerns has also gone up. That, too, requires more resources Tarbert said at a Jan. 25 hearing.

“From roughly 2008 through 2015, such cases represented fewer than 10 percent of the total covered transactions CFIUS reviewed,” Tarbert said. “This figure has risen to approximately 20 percent of total covered transactions CFIUS reviewed in 2017.”

Congress and the White House are pushing legislation ( S. 2098, H.R. 4311) that would expand the factors CFIUS must consider when looking at cross-border transactions. Lawmakers also agree that CFIUS needs more resources to keep up with the increased workload.

Withdraw and Refile

CFIUS often asks companies to withdraw their notice and refile to buy more time for the investigations and the fixes brought on by troubling transactions. More than half the notices filed between 2014 and 2016 — 31 out of 52 — were withdrawn and later refiled, according to a Bloomberg Law analysis. Eleven were withdrawn for other reasons, and two were rejected.

The process, informally termed “doom loops,” began in the Obama administration and has continued with the Trump White House, practitioners said.

In the last few years, withdrawing only to refile shortly afterward has become commonplace. Sixty percent of filers that withdrew between 2014 and 2016 eventually refiled.

Annual reports prior to 2014 don’t list how often this occurred, but practitioners and Bloomberg Law’s analysis indicate that the practice was rare.

“It’s definitely a phenomenon that’s grown in the last three years,” said Nate Bolin, partner with Drinker Biddle in Washington who advises on corporate transactions and regulatory affairs.

‘Extra Innings’

“Prior to 2014, most companies would try to work out the issues beforehand during preliminary discussions,” Bolin told Bloomberg Law. “CFIUS sometimes can’t work out the issues in the statutory time period, so they ask the parties to refile to extend the window.”

The growing frequency of refilings are a symptom of the committee’s workload and increasingly complex mergers under review, Hunter told Bloomberg Law. “Transactions are more complicated, involving novel, cutting-edge technology, and done through different legal structures, making the fact-finding process more challenging. The result is more cases going into extra innings.”

A CFIUS review is composed of four main parts: an informal preliminary phase; a 30-day formal review period; a 45-day maximum investigation period; and, if necessary, a presidential determination that lasts 15 days.

The acquired company may need to restructure the deal to limit the investor’s access if there is sensitive technology involved in a foreign transaction, Bolin said. That can take longer than the 45-day investigatory window, and the parties may need to withdraw and refile to accommodate the delay.

Greenfield projects — foreign direct investment in new companies such as startups — are exempt from CFIUS review. But Bolin said CFIUS has looked at them in the context of real estate investments near sensitive areas like military installations and government buildings.

“While greenfield investments aren’t delaying the process per se, the need to examine the physical footprint of acquisitions in the United States, and their location vis-à-vis government facilities, can complicate and prolong the review process,” he said.

A 2017 report from the U.S.-China Economic and Security Review Commission highlighted the national security concerns of recent Chinese investments in the U.S. It cited indirect control of companies by the Chinese government, use of shell companies to obscure ownership, and the opaque nature of the Chinese financial system.

—With assistance from Alexei Alexis

To contact the reporter on this story: Llewellyn Hinkes-Jones in Washington at

To contact the editor responsible for this story: Fawn Johnson at

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