This post was written by Bryan Seigworth.
On Wednesday, September 13, 2017, citing national security concerns, the White House issued an Order blocking the acquisition of Lattice Semiconductors by Canyon Bridge Capital Partners, a China-backed private equity firm. This Order was issued after Lattice Semiconductor appealed an order issued by CFIUS that blocked the deal.
What is CFIUS? CFIUS is the Committee on Foreign Investment in the United States, an inter-agency committee authorized to review transactions that could result in control of a US business by a foreign person, to determine the effect of such transactions on the national security of the United States. In short, if CFIUS finds that foreign investment in or acquisition of a US business presents national security concerns, it can halt or unwind the deal.
While investment or acquisition in the defense and aerospace industry are obvious examples where foreign investment could impact US national security, CFIUS has blocked transactions involving the acquisition of operators of US ports, technology companies, and financial companies. Although the CFIUS review process is somewhat opaque, CFIUS will consider, among other things, the following key factors in determining whether a deal presents risk:
- The capability and capacity of domestic industries to meet national defense requirements, including the availability of human resources, products, technology, materials, and other supplies and services.
- The control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the United States to meet the requirements of national security.
- The potential effects of the proposed or pending transaction on United States international technological leadership in areas affecting United States national security.
- The potential national security-related effects on United State critical infrastructure, including major energy assets.
- The potential national security-related effects on United States critical technologies.
- The potential for transshipment or diversion of technologies with military applications, including an analysis of national export control laws and regulations.
- The long-term projection of United States requirements for sources of energy and other critical resources and material.
Seeking pre-closing CFIUS review of a transaction is voluntary, but if review is sought and the transaction is approved, the US government cannot challenge the transaction later. In contrast, if a transaction is not submitted for CFIUS review it is subject to divestment or other action designed to address any national security threat inherent in the transaction. Parties to investment or M&A transactions involving foreign entities are encouraged to evaluate those transactions carefully with counsel to analyze whether a national security concern may be present and whether a pre-closing CFIUS review filing should be made.
