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Are there any appeals against the CFIUS decision?
Black: No. The statute that created CFIUS (the Exon-Florio amendment to the Defense Production Act of 1950) states that a decision of the President under that statute is not subject to review by a court. While it may be possible to bring a constitutional challenge to specific actions by CFIUS, the fundamental power of the President to prohibit transactions in order to safeguard the national security has not been called into question. (For background, transactions that CFIUS believes should be prohibited are formally submitted to the President for final action.) In practice, very few transactions are formally prohibited; rather, most potentially problematic transactions are either consummated subject to conditions to address the national security concerns or are withdrawn by the parties when the unsolvable objections of CFIUS become clear.
Is it possible to discuss the CFIUS’s view informally in advance?
Black: Yes. CFIUS welcomes informal consultations prior to the filing of a declaration or notice. These may take the form of a phone call by the parties’ legal counsel or a fulsome presentation and discussion of the proposed transaction. These discussions may entail negotiations over potentially problematic aspects and possible changes to the transaction or mitigation measures. The parties may also file a draft declaration or notice on which CFIUS may provide comments to help ensure that the parties’ formal filing contains all the required information. The binding review period does not commence until a formal filing has been made, so these discussions and negotiations may extend the total time required to complete the CFIUS process, but they may also increase the likelihood of a clearance.
What information does CFIUS request from the companies involved?
Black: As mentioned above, the information required for a declaration is substantially less than that required for a notice. However, both forms require detailed information about the transaction and the parties.
Can you please explain further details?
Black: Regarding the transaction, a declaration must include, inter alia, the rationale for the transaction, its structure, the voting and economic interests to be acquired, all sources of financing and a copy of the definitive agreement or other document showing the material terms. The parties must also disclose whether the transaction will give a foreign person access to material nonpublic technical information of the U.S. business or the ability to influence the substantive decision-making or otherwise control the U.S. business. As to the parties, required disclosures include extensive information about the operations of the target company, including whether its operations relate to critical technologies, critical infrastructure or sensitive personal data of U.S. citizens, as well as whether it engages in business with the U.S. government. Required disclosures also include detailed information about the acquiror and its ultimate parent, any intermediary parent companies and any shareholders of any of these entities (for public companies, this is limited to 5% or greater shareholders), as well as any foreign government ownership or control of the foreign acquiror. The scope of information to be provided in a notice is significantly broader and more detailed and includes very extensive “personal identifier information” (PII) on each director and officer of the foreign acquiror and its immediate, intermediate and ultimate parents and 5% or greater shareholders. As an example, required PII includes name, address, telephone number, national identity number, passport and visa information, and information about foreign government and military service. A notice must also include copies of any relevant agreements, including not just the main purchase agreement, but potentially also any partnership, shareholder or other agreements that affect governance rights and influence over a U.S. target.
Are there specific priorities of CFIUS that should be taken into account?
FIRRMA notably expanded the scope of CFIUS’s activities to place more emphasis on access to personal data of U.S. citizens, as well as a broader range of sensitive technologies and real estate investments. The expansion of CFIUS’s jurisdiction to cover non-controlling investments signals an intention to examine transactions that may not formally grant control but could result in foreign influence over or access to important technologies or data. In addition, CFIUS now has jurisdiction over changes in a foreign investor’s governance rights, even in the absence of any new investment, so parties will need to be aware that CFIUS review may be triggered in a broader range of situations. In addition, CFIUS has placed an increased emphasis on monitoring, both as to transactions that are publicly disclosed but not notified to CFIUS and as to parties’ ongoing compliance with mitigation agreements. One should also bear in mind that CFIUS may apply to transactions with a non-U.S. target, if the target has one or more U.S. subsidiaries or significant U.S.-based assets or operations.
What do you recommend for an efficient process – how can one ideally prepare CFIUS investment control?
Black: A collaborative approach between the transaction parties and in their dealings with CFIUS is key. It is critical for the parties to engage qualified CFIUS counsel early in the process, as CFIUS concerns may require changes to the transaction structure in order to avoid CFIUS objections and allow for an efficient review process. It is also highly advisable to engage with CFIUS on an informal basis prior to submitting a formal declaration or notice, as these discussions can greatly improve the speed and ease of the review, particularly by ensuring that the submission includes all of the information that CFIUS will require to undertake its review. For purposes of assessing the relevance of CFIUS – particularly for transactions in which a filing is not mandatory – it is essential that the parties conduct a thorough due diligence review of both the U.S. target and the foreign acquiror, as a review of the nature and business of both parties are critical for determining whether a CFIUS review will be needed.