Background: Section 721 - Exon-Florio amendment

• In 1988, amid concerns over foreign acquisition of certain types of U.S. firms, particularly by Japanese firms, Congress approved an amendment to the Defense Production Act,
  popularly known as the Exon-Florio amendment

• Authorizes the President to review mergers, acquisitions, and takeovers by or with any foreign person which could result in foreign control of any U.S. business to determine the effects of such transactions on the national security of the United States
• Attempt by Fujitsu, a Japanese electronics company, to acquire Fairchild Semiconductor in 1987 spurred adoption of the Exon-Florio amendment

• In 2007, substantial amendments were made by FINSA

• Regulations proposed by FINSA refer to the Exon-Florio amendment as "section 721", so that the two terms are synonymous
• As amended by FINSA, section 721 codifies aspects of the structure, role, process, and responsibilities of the Committee on Foreign Investment in the United States ("CFIUS") and the role of executive branch departments, agencies, and offices in CFIUS's review of transactions for national security concerns
• Amended by Section 5021 of the Omnibus Trade and Competitiveness Act of 1988
• Amended by Section 837(a) of the National Defense Authorization Act for FY93
• 1 Section 721 of the Defense Production Act of 1950, 50 U.S.C. 2061, et seq. (as amended by Section 5021 of the Omnibus Trade and Competitiveness Act of 1988, and by Section 837(a) of the National Defense Authorization Act for FY93). This article focuses on CFIUS-type restrictions, and recognizes that other regulatory tools also address national security risks associated with foreign investment, including sector-specific risks (e.g., banking, telecommunications, nuclear power) and transactional risks (e.g., National Industrial Security Program).

Statute

• Current text of the Exon-Florio Amendment
  - a/k/a "section 721 - is here
• Section 721 was amended by FINSA in 2007

Regulations

• CFIUS regulations are covered here

CFIUS jurisdiction

• CFIUS process applies to covered transactions
• Term is defined by statute and regulation;
  the scope of the definition is also affected by other CFIUS regulations

• See Covered Transactions
  For other defined terms, see Definitions

National security reviews - 30 days

• CFIUS process typically involves a "national security review" that commences upon the voluntary filing of a "notice" by the parties to the covered transaction

• Alternatively, CFIUS has independent authority to initiate a review -- even after consummation of the transaction

• Review to be completed in 30 days
• See National Security Reviews
  Also see Notices which covers the information required to be included in a notice

National security investigations - 45 days

• Following a national security review, certain covered transactions may be subject to a heightened "national security investigation," including if the transaction

• Threatens to impair the "national security" of the United States
• Is a "foreign government-controlled transaction", or
• Would result in control of any "critical infrastructure" of or within the United States by or on behalf of any foreign person

• Alternatively CFIUS has independent authority to initiate an investigation
• Investigation to be completed within 45 days
• See National Security Investigations

CFIUS considerations

• Section 721(f) specifies the "factors to be considered" by CFIUS when making a national security determination

Mitigation agreements

• Mitigation agreements can be used to address national security concerns and thereby gain CFIUS clearance

Reports to US Congress

• CFIUS is required to report to Congress on the actions it takes

CFIUS organizational matters

• CFIUS Organization covers CFIUS authority, membership and related matters

Precedent transactions

• We have a growing collection of EDGAR and other materials for select precedent transactions
• We also have materials and commentary on select notable transactions such as 3Com and Dubai Ports

Other topics

• Materials filed with CFIUS are confidential
• CFIUS must send certain notices and make required reports  to the US Congress

Other required approvals

• Foreign direct investment may require other approvals or be subject to limitations and prohibitions including

• See Other Laws

Timeline

• CFIUS established by Executive Order 11858  1975

• Committee has broad responsibilities, but few powers
• Housed in the Department of the Treasury
• Originally has eight members

• Exon-Florio Amendment  1988

• In 1988, amid concerns over foreign acquisition of certain types of U.S. firms, particularly by Japanese firms, Congress approved the Exon-Florio provision of the
  Defense Production Act
• P.L. 100-418, title V, Subtitle A, Part II, or
  50 U.S.C. app 2170

• Omnibus Trade and Competitiveness Act of 1988

• Exon-Florio provision, which was included as Section 5021 of that act, fundamentally transformed CFIUS
• Through Executive Order 12661, President Reagan implemented provisions of the Omnibus Trade Act. In the Executive Order, President Reagan delegated his authority to administer the Exon-Florio provision to CFIUS,21 particularly to conduct reviews, to undertake investigations, and to make recommendations, although the statute itself does not specifically mention CFIUS. As a result of President Reagans action, CFIUS was transformed from a purely administrative body with limited authority to review and analyze data on foreign investment to one with a broad mandate and significant authority to advise the President on foreign investment transactions and to recommend that some transactions be blocked.

• Treasury Department issues final regulations - Nov 1991

• In November 1991, the Treasury Department issued final regulations, after extensive public comment, implementing the Exon-Florio provision.12 These regulations created an essentially voluntary system of notification by the parties to an acquisition, but they also allow for notice by agencies that are members of CFIUS. Despite the voluntary nature of the notification, firms largely notify voluntarily because the regulations stipulate that foreign acquisitions that are governed by the Exon-Florio review process that do not notify the Committee remain subject indefinitely to divestment or other appropriate actions by the President. Under most circumstances, notice of a proposed acquisition that is given to the Committee by a third party, including shareholders, is not considered by the Committee to constitute an official notification. The regulations also indicate that notifications provided to the Committee are considered to be confidential and the information is not released by the Committee to the press or commented on publicly.
• Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons. 31 C.F.R. Part 800.
• Byrd amendment - 1992

• National Defense Authorization Act for Fiscal
  Year 1993 -- § 837a

• FINSA signed
  President's statement
  President's statement

Executive Order 13456  Jan 2008

• Federal Register  73 FR 4677 1.25.08

Law firms

• Pillsbury Winthrop  5.15.08
• Latham Watkins  5.08.08
• Gibson Dunn  5.07.08
• Drinker Biddle  May 2008
• Wiley Rein  April 2008
• Squire Sanders  April 2008
• Freshfields  April 2008
• Torys  4.29.08
• Paul Hastings  April 2008
• Dewey LeBoeuf  4.25.08
• Simpson Thacher  4.25.08
• Hogan Hartson 4.24.08

• Blank Rome  4.23.08
• Skadden Arps  4.22.08
• Cleary Gottlieb  4.22.08
• Wilmer Hale  4.22.08

CFIUS / Exon-Florio