The US government is blocking inbound M&A at
levels never seen before. What is the reason behind this
unprecedented change in approach?
|IFLR publishes its
monthly poll question on iflr.com and Linkedin group page
iflr.com/LinkedIn. Throughout the month,
IFLR’s editorial team gather the responses
and interview selected respondents. The next poll is
On March 12 President Trump took steps to intervene in
the $117 billion acquisition of Qualcomm by Singapore-based
rival Broadcom. The move is the latest in a number of evasive
steps to be taken by Trump and his administration to prevent
acquisitions that threaten to jeopardise national security in
the US in the 14 months since his inauguration.
This particular decision was unusual in that the agency that
monitors the space, the Committee on Foreign Investment in the
United States (Cfius), generally tends to hold off reviewing
deals until they have been formally announced. On this
occasion, the government stepped in during the early stages
while the acquisition was still being negotiated, leading many
to question the motives behind the judgement.
Is the new direction being forged by Cfius tantamount to a
rise in economic protectionism or is it a necessary safeguard?
On one hand there are clearly types of acquisitions that
present complex national security risks that are of grave
concern for the US government. On the other, it certainly does
appear that Cfius is increasingly becoming part of the US
The conversation is no longer just about defence orientated
technology from megalithic companies: areas like artificial
intelligence are now being developed by startups with only a
handful of employees, which is completely pushing the
Traditional approaches to managing these types of
technologies are yet to be captured in the Cfius process. There
is an increasing recognition from a national security and an
economic security standpoint that these technologies are at an
inflection point, where soon they are going to become very
important to the US economy, and to US national security more
With this in mind, IFLR has polled a number of its readers
this month on whether they think that Cfius is becoming a tool
for the US' economic protectionist agenda, or whether it
remains a necessary safeguard for the protection of the
Does Cfius promote
economic protectionism or is it a necessary safeguard?
A necessary evil
Fifty-five percent of respondents felt that ramped up use of
the Cfius mandate is a necessary safeguard to protect the
interests of the US.
Ama Adams, partner at Ropes & Gray in Washington, DC,
said that Cfius is necessary to protect the complex national
security risks of the US government. At this point there may
not be alternative mechanisms to deal with those risks, outside
of the Cfius paradox.
"People often to point to export controls as one way to
address national security risk, either as a compliment or an
enhancement to the Cfius process," she said. "But even with as
robust and comprehensive of an export control regime as the US
currently has – and there is an effort underway to
enhance and improve on that structure – you still run
a risk of missing certain types of transactions that might not
perhaps present an export control risk but do raise other
national security considerations that the US government should
consider through the Cfius process."
Export control is very much focused on the export of
technology and software, but not every transaction has issues
that present national security concerns.
Using Cfius as a vehicle for economic protectionism would be
an incomplete policy lever. The cross-departmental committee
does ultimately not review that many cases, and the ones that
it does look at tend by definition to be a US business that
seeks to be party to a transaction. So in that sense, it is an
over inclusive tool.
One could criticise the efficiency of a Cfius review, or
whether Cfius staff and decision makers have adequate resources
to crunch through the cases as expeditiously as possible. In
principle, a review would need to ensure that weapon sensitive,
energy sensitive or personal sensitive information is not
acquired by certain states.
"In general administrations like approving deals, in general
you have a presumption in favour of market transactions by
sophisticated players who can protect their own interest," said
a US-based lawyer.
Looking at transactions that Cfius tends to take notice of,
they are not huge from a trade perspective, but they are
important from a business perspective. Administrations are
reluctant to impede free market business transactions, so using
Cfius as a way to impact free business isn't necessarily the
best use of the tool.
The elephant in the room
When Cfius is discussed, it doesn't take long for China to
be mentioned. In fact it surprising that in this article the
country is yet to surface. Another reason that it is unfair to
call the Cfius process pure economic protectionism, and why it
can be considered a wholly necessary safeguard, is that it has
become increasingly important to maintain parity with the 'Made
in China 2025' policy that has seen the country make great
strides to become dominant players in industries such as
microelectronics and alternative energy.
"I don't think this is just rank protectionism, China is
using both the size of its market and the desire of US
companies to do business there," said Ivan A. Schlager, partner
at Skadden, Arps, Slate, Meagher & Flom in Washington, DC.
"They are leveraging their market to get companies to licence
their technologies, and I think that the recent change in tone
is an attempt to address what the Chinese are successfully
|Cfius: putting American
technology and American national security first
One in four of our respondents were hesitant to go in either
direction, largely citing uncertainty in the definition of
national security itself.
The Foreign Investment Risk Review Modernization Act
(Firrma) is a pending attempt to modernise the Cfius mandate,
and while it is not known for sure the actual changes that the
act will bring, it is likely to modernise and strengthen
certain aspects under the auspices of maintaining national
security risks. There are fears that these changes will
negatively impact inbound M&A and foreign investment
Rick Oehler , partner at Perkins Coie, agreed that national
security is a broad term. He pointed out that when Cfius was
enacted, its regulations intentionally did not define national
security. A premise that remains true today. It is hard to draw
a line between national security, and economic
"Cfius may consider a number of factors in determining
whether a proposed transaction may threaten to impair national
security including impact on the US economy, impact on US
critical infrastructure, and threatened loss of the personally
identifiable information of US persons," he said.
Despite the changes within Firrma that seem to indicate a
move towards protectionism, even the most fervent advocates
really expect it to stick to protection of national security in
a fairly narrow way. Even though they are expanding into the
realms of expert controls, not many would say that expert
controls are unrelated to national security.
Finally, one in five of the respondents to the poll went as
far as saying that the Cfius process is increasingly probing
into the realms of economic protectionism. Clifford Chance
partner Joshua Berman suggested that, now more than ever, the
Cfius review process is becoming part of the the political
apparatus of the US. It is not the primary thinking, the other
Cfius control processes haven't gone, he said, but it does now
seem to be an important part of the analysis.
"Part of the current administration's global economic
approach is America first; it is part of the campaign and part
of the economic policy," he said. "Hand in hand with that
economic policy is a focus on protecting American technology
and protecting American national security while keeping an eye
on traditional challengers to US strength abroad."
There are many areas where policies can be put in place or
tightened to protect US interests. Cfius is only one of a
number of places where this is currently playing out.