In early August 2020, it was announced that the German Siemens Healthineers plans to take over the world market leader in cancer radiation therapy: the listed U.S. group Varian at 16.4 billion USD. Besides transactions of this size, also acquisitions of typical mid and small caps in the USA may require the approval of the Committee on Foreign Investment in the U.S. (CFIUS).  Jim Black, German-speaking partner for M&A at Acceleron Law Group in Washington, explains how the CFIUS investment control works and which requirements need to be fulfilled.

Mr Black, to which industries does the CFIUS approval process apply?

Black: CFIUS has for many years had jurisdiction to review the potential national security implications of any transaction that could result in foreign control over a U.S. business.  The scope of application of CFIUS was substantially expanded through the passage of the Foreign Investment Risk Review Modernization Act (FIRRMA) in 2018 and its implementation by the U.S. Department of the Treasury in the first half of 2020.  Under FIRRMA, CFIUS now has jurisdiction over certain transactions in which a non-controlling position in a U.S. business in specific industries is to be acquired.  The companies affected by this expanded jurisdiction are so-called “TID” businesses, whose operations involve critical technologies, critical infrastructure or sensitive personal data of U.S. citizens.  Additionally, since the adoption of FIRRMA, certain real estate investments are expressly subject to CFIUS review.

Is there any turnover threshold from which CFIUS is in charge?

Black: No, there is no minimum revenue threshold or similar transaction-size test for CFIUS jurisdiction.  Instead, CFIUS jurisdiction is based on the nature of the target company and the nature and potential effects of the proposed transaction.

Does CFIUS require a threat to public security and order?

Black: In principle, yes.  A transaction may be prohibited by CFIUS only if (i) it would pose a threat, which refers to the intent and capability of a foreign person to take action to impair the national security of the United States; (ii) there is a vulnerability, which means that the nature of the U.S. business presents susceptibility to impairment of national security; and (iii) there are potential adverse consequences to national security that could reasonably result from the exploitation of the vulnerabilities by the threat actor.

How does the investment control work – who can apply, when and how long does the approval process typically take?

Black: If the parties to a proposed transaction will notify CFIUS of the transaction, typically the foreign investor and the target company jointly prepare the filing.  The parties may make a CFIUS filing at any time prior to (or even following) consummation, including prior to execution of a binding purchase agreement based on a term sheet or other agreed terms.

Is the application mandatory by law?

Black: For most transactions, a CFIUS filing remains voluntary, although CFIUS retains the authority to review closed transactions for which no filing has been made and, in extreme cases, to require the parties to change or unwind the transaction after it has closed.  Since the passage of FIRRMA certain transactions are subject to a mandatory filing requirement.  These transactions are ones in which a foreign government is acquiring a “substantial interest” in certain U.S. businesses or transactions involving U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies.

How long does the process typically take?

Black: The filing process was amended by FIRRMA to allow for the filing of either a full “notice” containing extensive information about the transaction and the parties, or a shorter “declaration” that requires substantially less information.  Both voluntary and mandatory filings may be made as either a notice or a declaration.  If a declaration is filed, CFIUS has 30 days to review it and to notify the parties of the results of its review, which may include clearing the transaction, initiating an investigation, asking the parties to file a full notice or notifying the parties that CFIUS is unable to take further action based on the declaration.  If a notice is filed, CFIUS has 45 days to review it. After this period, CFIUS may clear the transaction or initiate an investigation, which must be completed in 45 days (although CFIUS may extend this period to 60 days).  If CFIUIS determines based on its review of a declaration or notice that a transaction is unproblematic, it may clear the transaction by issuing a “safe harbor” letter that assures the parties that the transaction will not be subject to further CFIUS review, absent extraordinary circumstances.  If CFIUS identifies concerns, it may request additional information from the parties or require conditions or changes to the transaction or assurances from the parties, including in the form of a binding mitigation agreement, before it approves the transaction.  In cases in which mitigation is not feasible or cannot be agreed with the parties, CFIUS may recommend that the President prohibit consummation of a transaction.

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