Antitrust

Shearman & Sterling Antitrust Annual Report 2019

Shearman & Sterling LLP

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S H E A R M A N & S T E R L I N G L L P | 2 7 Overall, outside of certain passive investments, FIRRMA expands CFIUS's jurisdiction to cover several additional categories of transactions involving foreign investors. The extension of CFIUS's jurisdictional reach has already introduced several new complexities for foreign investors, and it portends continued aggressive enforcement by CFIUS, particularly when the transaction involves a foreign buyer's access to sensitive technology. CFIUS FILINGS ARE NOW MANDATORY FOR CERTAIN TRANSACTIONS Historically, CFIUS operated an entirely voluntary filing regime. This meant that for any transaction, a foreign investor could choose to notify CFIUS of its transaction before closing, or it could close the transaction without notifying CFIUS. Pre-closing notification to CFIUS was beneficial to foreign investors because once CFIUS reviewed and approved a transaction and the President did not block it, the President could not later order that the transaction be reversed. On the other hand, if a foreign investor did not submit a pre- closing notification and CFIUS and the President later determined that the transaction adversely impacted national security — even months or years after closing — the President could order the parties to unwind the transaction, including by requiring costly and onerous divestitures. Pre-closing notification thus provided certainty to the transacting parties. FIRRMA and the related implementing regulations issued by CFIUS maintain the voluntary filing system for most transactions involving foreign investors. Because CFIUS determined that foreign investments in 'critical technologies' in certain industries pose an imminent national security threat, CFIUS rolled out a pilot program that requires foreign investors to submit a notification in some situations. Under the pilot program, a foreign investor must submit a declaration to CFIUS at least 45 days before closing on any transaction in which the foreign investor would acquire control of a company that develops, or gain access to material nonpublic information about, critical technology related to any one of 27 specifically listed industries. These industries include semiconductor manufacturing, wireless communications equipment manufacturing and missile propulsion manufacturing. For purposes of the pilot program, 'critical technologies' are defined as technologies that are subject to various export control regulations, such as the International Traffic in Arms Regulations or the Export Administration Regulations. The new requirement for mandatory filings with respect to critical technologies, and how that requirement impacts deal risk and timing, may only be the beginning. FIRRMA authorizes CFIUS to implement other pilot programs and additional regulations to effectuate FIRRMA's goals. Accordingly, foreign investors must be aware of the changing landscape of CFIUS's national security review. TAKEAWAY: FOREIGN INVESTORS WILL FACE NEW CHALLENGES WHEN INVESTING IN SOME U.S. COMPANIES CFIUS recognizes that foreign investment in the U.S. is generally beneficial because it provides U.S. companies with access to capital and creates jobs. FIRRMA and CFIUS's related regulations seek to balance these benefits against national security concerns stemming from foreign investment in certain types of U.S. companies. CFIUS is expected to continue its aggressive posture in investigating foreign investments, particularly those in the high-tech and military sectors. Foreign investors must be cognizant of these new requirements and consider how they affect the parties' ability to close the deal. Foreign investors should also be aware that CFIUS will likely continue to promulgate new regulations to implement FIRRMA that will impact different industries and may implement new disclosure requirements. C F I U S R O L L E D O U T A P I L O T P R O G R A M T H A T R E Q U I R E S F O R E I G N I N V E S T O R S T O S U B M I T A N O T I F I C A T I O N I N S O M E S I T U A T I O N S

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