DealLawyers.com Blog

By now, we’ve all heard about the plight of the falling US dollar (e.g., all-time low against the Euro and decades low against the Yen). With prospects for even higher budget deficits, a further decline in the dollar is looming.

Fear not, my fellow deal lawyers for there’s a silver-lining that may end up lining your pockets. The good news is that the weak dollar makes US goods – and assets – cheaper. So, for the acquisitive European or Asian business, for example, your friendly neighborhood central bankers have just stuck a great, big “ON SALE” sign on those prime US targets that you’ve been salivating over. Talk about “closing the gap” on valuation issues. Who needs an earnout if you have currency that just jumped 50% (psst, earlier this month, the Euro was up more than 50% against the US dollar since 2001)? So, if you’re Alcatel who just last month acquired Spatial Wireless, a US telecom equipment maker, for US$250M, you have a lot of Euros left over for a closing dinner filled with truffles by the bucket and Jeroboams of Cristal Rosé.

To make sure your year is filled with sushi and sake closing dinners, you may want to brush up on possible traps for the unwary foreign buyer (and even unwary US seller) including:

1. Export Controls. First-base for all acquisitions is information about the seller. Care must be taken not to violate US export controls, which includes “technical data.” Better think twice before including that R&D memo in that data room.

2. National Security Review. Under Exon-Florio, the US can block – and even more scary – unwind an acquisition by a foreigner on national security grounds. For example, recent news reports are that the proposed $1.25B sale of IBM’s PC business to China’s Lenovo may be stalled over regulators’ concerns over Chinese industrial espionage. By the way, there’s no definition of “national security” and if you don’t file proper notice, there’s no time limit on when the Government can step in to unwind a deal. (Lenovo/IBM and recent reports of China’s CNOOC attempted $13B takeover of Unocal should be a wake up call on the coming wave of foreign investment by an economic juggernaut called China).

3. Government Contractors. Any restrictions on foreign ownership?

4. Regulated Industries. Telecom, media, defense, insurance, banking, utilities, and airlines may be the source of “burdensome conditions” based on foreign ownership. For example, the FCC rules prohibit a company with more than 25% foreign ownership from holding certain radio licenses.

5. “Fat Lady” Issues. With the likes of Omnicare still looming, foreign buyers may surprised to hear that limitations on fully-locked deals and other deal protections hamper a buyer’s ability to “make that Fat Lady sang (yes, that’s a Texas accent thang).”

6. SOX Issues. If the foreign buyer is listed in the US or intends to list in the US, it’s not out of the SOX woods simple because the US target is private. In fact, a private target that’s woefully SOX non-compliant may be the source of many, many headaches. Foreign buyers whose daily lives don’t revolve around this post-Enron fallout should not have this false sense security for SOX simply because target is a privately-held US business.

So, cheer up! Your cars, toys, TVs and cups of latte on the Champs-Elysées may be more expensive, but a surge in weak dollar US M&A activity should beef (or is that boeuf?) up your partnership distributions. Thanks to the weak dollar, your dreams of shedding that mild-mannered M&A lawyer image to become an International Man (or Woman) of Mystery may soon come true. GROOVY BABY!