China’s investments in the U.S. have increased rapidly and will continue to grow in order to acquire advanced technology, real estate, market channels and other assets. With solar module oversupply continuing through 2013 and the balance sheets of many solar module, energy storage and other cleantech companies under severe stress, more industry consolidation is occurring. With Chinese companies making large R&D investments in new clean technology, as well as in the deployment of proven technology, U.S. technology and businesses are strategic targets. In most cases, those proposed investments by Chinese companies are subject to national security review by the Committee on Foreign Investment in the United States (CFIUS), which has shown a willingness to question a number of China-related M&A transactions and to require a range of national security protections in some deals.
The recent annual report from CFIUS provides insight into the committee’s national security review (Exon-Florio review) considerations and the potential challenges foreign companies may face when considering M&A transactions and other investments in the U.S. This article provides an overview of the Exon-Florio review process, the timeframe for decision-making and practical guidance for Chinese companies considering transactions in the U.S. in 2013. While many of the examples are from the clean technology sector because of the large number of distressed companies and assets looking for buyers, the guidance is applicable to other sectors as well.
The Legislative Background
Congress enacted the Exon-Florio Amendment as part of the Omnibus Trade and Competitiveness Act of 1988. The law grants the President authority to block or suspend a transaction that would provide a foreign person with control over a U.S. business when there is “credible evidence” that it may “impair the national security.” To help the president make that determination, he relies on CFIUS, an inter-agency cabinet level committee chaired by the Secretary of the Treasury, to conduct the Exon-Florio review.
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