US Inbound Acquisitions

US inbound acquisitions

April 12, 2016 | By Keith Martin in Washington, DC

CFIUS reported to Congress in February that foreign companies submitted 147 proposed acquisitions of US companies to it for review in 2014.

A little over a third (52) went into an investigation phase. Twelve proposed deals were withdrawn. One was resubmitted in 2015 with revised terms.

Thirteen of the proposed deals for which foreign buyers sought clearance in 2014 were utility transactions. Of those, seven involved power generation, transmission or distribution, five involved natural gas distribution and one was in the water and sewage sector.

The largest number of filings in 2014 was for in-bound US investments from China. The top five countries for which filings were made in 2014 are China (24) (but China accounted for 30 filings if Hong Kong is added), United Kingdom (21), Canada (15), Japan (10) and Germany (9).

CFIUS — short for the Committee on Foreign Investment in the United States — is an inter-agency committee of 16 federal agencies, headed by the Treasury Department, that reviews potential foreign investments in US companies for national security concerns. 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. President Obama ordered Chinese-backed Ralls Corp. in 2012 to divest four wind farms that the company bought in Oregon at which it hoped to deploy turbines made by its affiliate, Sany Electric Co. One of the wind farms is close to a US Navy base that provides training for drone aircraft.

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. According to the latest report, covering the period through December 2014, the committee reviewed 627 proposed transactions in the six years from 2009 through 2014, or an average of 105 a year. About 11% of proposed transactions were withdrawn during this six-year period, with 3% of withdrawals occurring during the initial review stage and another 8% during the investigation stage.

In 2014, only 8.2% of transactions were withdrawn. Another 6.1% were cleared, but after agreeing to mitigation measures.

Congress asked CFIUS to note any transactions involving foreign companies in countries that comply with the Arab boycott of Israel. Eight such transactions were identified in 2014, mostly involving the energy sector. The foreign companies making US acquisitions were in the United Arab Emirates, Qatar, Saudi Arabia, Bahrain and Oman.