presents presents CFIUS Regulations for Foreign Investment in the U S Investment in the U.S. Leveraging Lessons Learned One Year After the New FINSA Requirements A Li A Live 90-Minute Teleconference/Webinar with Interactive Q&A 90 Mi t T l f /W bi ith I t ti Q&A Today's panel features: Clay Lowery, Managing Director, The Glover Park Group , Washington, D.C. Nova J. Daly, Public Policy Consultant, Wiley Rein , Washington, D.C. F Farhad Jalinous, Partner, Kaye Scholer , Washington, D.C. h d J li P t K S h l W hi t D C Thursday, March 25, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific 10 am Pacific You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrations.
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CFIUS Notices: Lessons Learned CFIUS Notices: Lessons Learned One Year Under the FINSA Regulations Presented by: Farhad Jalinous 13
Net Value • The FINSA regulations ask for a “good faith approximation of the net value of the interest acquired in the U.S. business in U.S. dollars, as of the date of the notice.” (31 CFR 800.402(c)(1)(viii)) Net value may involve more than just the purchase price of the U.S. business, e.g., assumed debt, post-closing payments, etc. • This information is primarily used by the Department of Commerce for This information is primarily used by the Department of Commerce for statistical purposes and to assess the proposed transaction relative to other transactions. • “Good faith approximation” has been treated broadly and CFIUS has been relatively flexible with the estimation methods used by parties. • Even if CFIUS certifies a notice and begins the 30-day review, it may ask follow-up questions during the review regarding the value of the U.S. business being acquired and the methodology for the determination being acquired and the methodology for the determination. 14
Methodology to Determine Market Share • The regulations require information regarding the activities of the U.S. business being acquired, including an estimate of U.S. market share and “the methodology used to determine market share …” (31 CFR 800.402(c)(3)(i)) • Market share information allows CFIUS to assess the scale of the proposed transaction. A transaction that results in a foreign person acquiring a substantial market A transaction that results in a foreign person acquiring a substantial market share can present a risk to national security. Has the accumulation reached a “tipping point” to present a national security concern? security concern? • CFIUS has been flexible in evaluating the methodologies used to estimate market share. The market share information is usually more readily available for transactions requiring Hart-Scott-Rodino filings. 15
Government Contracts • Prior to FINSA, the regulations asked for information about the U.S. business’ classified contracts (going back five years) and unclassified contracts with U.S. Government agencies with national defense responsibilities (going back three years). years). • The FINSA regulations changed the information request for unclassified U.S. Government contracts to include those with a “United States Government agency or component with national defense, homeland security, or other national security responsibilities, including law enforcement responsibility as it ti l it ibiliti i l di l f t ibilit it relates to defense, homeland security, or national security.” (31 CFR 800.402(c)(3)(iv)) Contracts with a “U S Government agency” can include state and local Contracts with a U.S. Government agency can include state and local government agencies. • The regulations also ask for the number of contracts and orders that are subject to the Defense Priorities and Allocation System (DPAS) regulations, including y ( ) g , g their DPAS ratings (DO or DX), as well as the acquiring entity’s plan to ensure compliance with the DPAS regulations after closing. 16
Articles/Services Under Development • The regulations ask whether the U.S. business being acquired produces or trades in “… articles and services (including those under development) that may be designated or determined in the future to be defense articles or defense ser ices p rs ant to 22 CFR §120 3 ” (31 CFR 800 402(c)(4)(ii)) defense services pursuant to 22 CFR §120.3.” (31 CFR 800.402(c)(4)(ii)) • This is a significant expansion of the pre-FINSA regulations, which asked whether the U.S. business produced defense articles or defense services under the ITAR. d th ITAR • The FINSA regulation is very broad, and notably includes products and services that may be designated or determined in the future to be subject to th the ITAR. ITAR • Despite significant concerns that this would be a very burdensome and problematic requirement, so far it has not proved to be a significant issue in g reviews. 17
Personal Identifier Information • The regulations require “personal identifier information” to be submitted for the Th l i i “ l id ifi i f i ” b b i d f h directors and senior management officials of the acquiring entity and all of its parent companies. “For each member of the board of directors or similar body (including external directors) and For each member of the board of directors or similar body (including external directors) and officers (including president, senior vice president, executive vice president, and other persons who perform duties normally associated with such titles) of the acquiring foreign person engaged in the transaction and its immediate, intermediate, and ultimate parents, and for any individual having an ownership interest of five percent or more in the acquiring foreign person engaged in the transaction and in the foreign person's ultimate parent...” (31 CFR 800 402( )(6)( i)) 800.402(c)(6)(vi)) • Personal identifier information consists of: full name (and all other aliases used), business address, country and city of residence, date and place of birth, SSN, national identity number information, passport and visa information, and details national identity number information, passport and visa information, and details about foreign military and government service. • Personal Identifier Information is submitted to CFIUS separately from the Notice. • A curricula vitae or professional synopsis must also be submitted for each of these • A curricula vitae or professional synopsis must also be submitted for each of these individuals. (This is submitted with the notice.) • Preparing the personal identifier information can be very time-consuming and is frequently the biggest cause for delay—on the buyer’s side—in completing a notice. ti 18
Treasury Guidance on Transactions Presenting National Security Considerations • In December 2008, the Treasury Department issued “Guidance Concerning the National Security Review Conducted” by CFIUS. (73 Fed. Reg. 74,567) • The Guidance concerned the types of transactions CFIUS had reviewed that presented The Guidance concerned the types of transactions CFIUS had reviewed that presented national security considerations. The Guidance defines “national security considerations” as “facts and circumstances, with respect to a transaction, that have potential national security implications and with respect to a transaction, that have potential national security implications and that therefore are relevant for CFIUS to analyze in determining whether a transaction threatens to impair U.S. national security, i.e. , whether the transaction poses ‘national security risk.’” If a transaction presents national security considerations it does not necessarily If a transaction presents national security considerations, it does not necessarily mean that CFIUS will determine it presents a risk to national security or that the transaction will be blocked. • The Guidance emphasized that CFIUS is only concerned with “genuine national security concerns raised by a covered transaction,” not other national interests. 19
Guidance on Transactions Presenting National Security Considerations (Cont’d) • The Guidance outlined the threat and vulnerability analysis CFIUS conducts for its national security assessment. Threat: “whether a foreign person has the capability or intention to exploit or cause harm.” Vulnerability: “whether the nature of the U S business or its relationship to Vulnerability: whether the nature of the U.S. business, or its relationship to a weakness or shortcoming in a system, entity, or structure, creates susceptibility to impairment of U.S. national security.” • There are also statutory factors CFIUS must consider in assessing a proposed • There are also statutory factors CFIUS must consider in assessing a proposed transaction’s threat to national security. 20
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