Foreign Investment screening: the other merger review

As the other articles in this issue make clear, there are a myriad of antitrust issues that merging parties must consider when planning their transactions and evaluating the potential regulatory risks. In cross-border transactions, another important consideration is securing clearance under foreign investment screening laws. In many countries, significant foreign acquisitions of domestic companies require government approval under foreign investment laws, which are generally intended to ensure foreign acquisitions are in the national or public interest or are of net benefit to the country concerned. In addition, foreign investment rules may screen investments for national security purposes.

Foreign investment reviews have made headlines recently in a number of jurisdictions:

• On September 21, 2017, the landmark trade deal between Canada and the European Union, the Comprehensive Economic and Trade Agreement (CETA), came into provisional effect after almost a decade of negotiations. As a result, the review threshold under the Investment Canada Act has been amended to provide that investors from the EU that are not state-owned enterprises will benefit from an increased investment review threshold of C$1.5 billion in enterprise value. As a result of most-favoured nations clauses in Canada’s other free trade agreements, investors from Chile, Colombia, Honduras, Mexico, Panama, Peru, South Korea, and the United States will also benefit from this increased review threshold. Additional details are available here.

• On September 13, the European Commission (Commission) proposed a regulation creating a new framework for screening foreign direct investments into the European Union.  The proposal would address the potential for divergence among existing Member State screening mechanisms and create a new oversight role for the Commission itself.  The framework could affect acquisitions in a broad range of industries, including communications, data storage, energy and transport infrastructure, artificial intelligence and robotics. Additional details are available here.

• Also on September 13, 2017, Donald Trump, President of the United States of America, issued an Executive Order blocking the proposed acquisition of an Oregon-based semiconductor firm by an investment fund whose ultimate parent is a Chinese state-owned entity. The Committee on Foreign Investment in the United States (CFIUS) had proposed that the transaction be blocked due to national security concerns. Although President Trump’s action is only the fourth time in the last 27 years that a president has blocked a transaction, the last time similar steps were taken was only in December 2016, when President Obama blocked a proposed Chinese acquisition of a semiconductor firm. Additional details are available here.

• On July 1, 2017, a suite of changes came into effect to streamline Australia’s foreign investment (FIRB) regime. The new changes to the FIRB regulations are mostly incremental, but will nevertheless assist foreign investors investing in residential land, commercial real estate in central business district areas, student accommodation, aged care and retirement villages, and wind or solar farms. The streamlined fee structure, which is now calculated on consideration payable by the foreign investor, should also reduce the application fee for some of the small to medium-sized investments. Additional details are available here.

Although only a very small proportion of all foreign investments are blocked or otherwise approved subject to terms and conditions or other mitigation measures, it is crucial that due consideration be paid to the potential regulatory risk posed by foreign investment review laws. The reviews can be lengthy and therefore affect overall deal timing, and as such it is important that counsel coordinate to the extent possible with their antitrust colleagues.