Treasury Department Publishes Final CFIUS Regulation Covering Mergers, Acquisitions and Takeovers by Foreign Persons
The Treasury Department's Office of Investment Security published in Friday's Federal Register the long-awaited final regulation implementing the changes to the inter-agency Committee on Foreign Investment in the United States (CFIUS) reporting and review process relating to mergers, acquisitions and takeovers by foreign persons as required by the Foreign Investment and National Security Act of 2007 (FINSA) (Public Law 110-49).
FINSA, which was passed by Congress in July 2007 and became effective on October 24, 2007, was passed following the controversial proposed acquisition of certain U.S. port facilities by UAE-owned Dubai Ports World in early 2006.
The final regulation, which becomes effective on December 22, 2008, makes several changes to the proposed rule published in April 2008 based on the numerous public comments submitted in writing and at a public hearing held in Washington, DC.
Among other things, the final rule clarifies the scope of “covered transactions” by or with any foreign person, which could result in control of a U.S. business by a foreign person, that are subject to CFIUS review. For example, the new regulations states that:
- "Greenfield", or start-up investment, is not a covered transaction.
- Asset acquisition is not a covered transaction if the assets acquired by a foreign person do not constitute a “U.S. business.”
- Long-term leases may be a covered transaction only if a foreign lessee makes substantially all business decisions concerning operation of a leased U.S. business, as if it were the owner.
- Lending transactions are not a covered transaction unless the foreign person acquires financial or governance rights characteristic of an equity investment, but not of a loan. Imminent default giving a foreign person actual control of collateral that constitutes a U.S. business is a covered transaction – but lenders in the ordinary course may qualify for an exception.
With respect to private equity investments, the final rule adds examples to clarify that certain structures create ownership interests but not control, clarifying that CFIUS focuses on person’s powers, not the transaction form.
The final rule also revises treatment of joint ventures to ensure that using a JV to acquire a U.S. business is a covered transaction to the same extent as a direct acquisition. In addition, the final rule clarifies that there is no automatic exclusion for acquisitions of ten percent or less.
The final rule also adds new examples and expand others to clarify the difference between “control” and mere “influence.”
With respect to the CFIUS notification and review process, the final regulation:
- Encourages pre-filing consultations to aid parties in preparing notices and to ensure efficient reviews.
- Requires prompt action throughout the review process by the Staff Chair and by parties to transactions, within the context of the strict deadlines established by statute for reviews (30 days) and investigations (45 days).
- Extends confidential treatment to information pre-filed with CFIUS, including if no notice is ultimately filed.