The Committee on Foreign Investment in the United States' ("CFIUS") recent annual report to Congress signals that the CFIUS review process may become a longer pole in the tent for corporate transactions involving the acquisition of sensitive U.S. businesses by foreign persons. Not only have a higher percentage of CFIUS notices gone to the additional 45-day investigation period, but CFIUS also has ramped up its use of measures to mitigate national security concerns. As a result, foreign persons seeking to acquire U.S. businesses that raise national security or critical infrastructure concerns should factor the CFIUS review process into both the timing of the deal and the analysis of its overall benefit and value.
CFIUS is an interagency committee of the U.S. government granted the authority to review proposed transactions when a foreign person will acquire control of a U.S. business. As a practical matter, CFIUS is most interested when the possible deal raises national security or critical infrastructure concerns. CFIUS also is authorized to impose and enforce agreements or conditions to mitigate such concerns. The CFIUS process begins when parties to a potential transaction prepare and submit a joint voluntary notice to CFIUS, which initiates a 30-day review period. After the initial review, CFIUS will clear the transaction or commence an additional 45-day investigation. At the end of the 45-day period, CFIUS clears the transaction or, if it is determined that national security risks have not been mitigated, forwards the notice to the President, who has 15 days to prohibit, suspend, or clear the transaction.
According to an unclassified version of a February 2015 report to Congress, during 2013, CFIUS conducted reviews of 97 notices of covered transactions. This is a decrease from the two prior years, during which CFIUS conducted reviews of 111 and 114 notices of covered transactions, respectively. Of the 97 notices reviewed during 2013, nearly half went to the additional 45-day investigation period. This is up from prior years 2009 to 2012, when notices sent to the 45-day investigation phase were consistently below 40 percent. Some of the 2013 increase was due to the October 2013 U.S. government shutdown. Setting those cases aside, the number of notices that took an additional 45 days to clear CFIUS increased to 44 percent during 2013.
The report also details an increased use of measures to mitigate national security or critical infrastructure concerns in connection with those 97 notices reviewed by CFIUS. Specifically, CFIUS reported using mitigation measures in 11 transactions during 2013, which equals approximately 11 percent of notices reviewed. This is up from 2010 to 2012, when mitigation measures were used in approximately eight percent of the transactions. In addition, the report identifies a new, more aggressive mitigation measure used during 2013, which grants the U.S. government the ability to review and object to certain business practices if they raise national security concerns. Parties to a transaction should take this more aggressive mitigation approach into account while assessing the costs and benefits of a particular transaction.
As a result of these changes, foreign parties contemplating investments in sensitive U.S. businesses should plan for CFIUS to play a more prominent role in the process, including the time it might take to complete a deal, and the potential of having to negotiate and enter into mitigation measures with CFIUS. The most effective approach is to anticipate potential issues and take steps to address them.