In October, the US Treasury’s Committee on Foreign Investment in the US (CFIUS) introduced new mandatory notification rules for foreign investments in US businesses involved in ‘critical technology’. Foreign investors will have to notify CFIUS of their intentions or face hefty fines.
The rules represent the latest tightening of public interest and foreign investment regimes globally. They are unlikely to be the last.
Regimes differ between jurisdictions, but we see certain trends emerging.
Even voluntary regimes are bringing in a dual track process, with mandatory notification for certain transactions.
- In the US, the national security review process used to be entirely voluntary: companies could choose to take the risk of closing transactions without notifying. Although remaining voluntary for most deals, for those falling within the new requirements, it is now mandatory for a notification to be submitted at least 45 days before closing, effectively imposing a waiting period for affected deals.
- Germany introduced a mandatory notification requirement in July 2017 for foreign investments in critical infrastructure. This is in addition to an existing mandatory regime for specific (mostly military) sectors and a voluntary notification regime for foreign investments in other sectors.
- In contrast, the UK government confirmed in its national security and investment white paper (PDF) in July 2018 that it no longer intends to implement a mandatory notification regime for transactions relevant to national security. It instead proposed an expanded call-in right that it could exercise up to six months after the relevant trigger event occurs (such as the acquisition of shares). In the face of this period of uncertainty, many companies may well choose to make a voluntary notification.
There is a move to trying to capture very new technologies.
- In the US, the mandatory regime will apply to critical technologies. This includes ‘emergent and foundational’ technologies controlled under the Export Control Reform Act of 2018.
- In the UK, short-term reforms introduced in June 2018 apply to quantum and computing hardware technologies, among others. The longer-term reforms, which are still under consultation, are likely to draw in other advanced technologies.
Even very small transactions may be affected.
- The UK’s standard merger control regime applies if: (i) the target has a turnover of £70 million or more; or (ii) the deal results in the creation or enhancement of a share of supply of 25 per cent in any goods or services in the UK. The June 2018 reforms reduce the threshold for deals in the relevant sectors to just £1 million, or a share of supply in any goods or services of 25 per cent (i.e. either party could meet the threshold on its own). The changes clearly intend to capture even the smallest deals in the affected sectors.
- The new rules in the US apply to any non-passive investment, with passivity defined very narrowly. For transactions in scope of the mandatory requirements, there is no threshold transaction value or investment level. Therefore, even low minority investments could be caught.
- In Germany the current regime applies to acquisitions of 25% or more of voting rights in German companies. However, it has been reported that the German ministry is considering lowering the threshold in order to capture acquisitions of as low as 10-15% of voting rights.
These trends are only likely to increase the number of deals affected by public interest and foreign investment notification requirements. The German ministry reviewed 42 transactions in 2016, whereas it is expected that it will review around 100 cases during 2018, while the UK government expects a further 200 notifications per year under its new regime. The US changes are also likely to lead to a significant increase in notifications.
For further analysis of the trends which we are currently seeing in public interest and foreign investment, read our report Public interest or protectionism? Navigating the new normal (PDF).