January 8, 2018

CFIUS: “Forget It, Jake – It’s a Chinese Buyer”

Another proposed acquisition of a U.S. business by a Chinese buyer just bit the dust, courtesy of CFIUS.  Ant Financial and MoneyGram announced last week that they’ve called off their merger after CFIUS refused to sign-off on their efforts to address concerns about safeguarding personal data of U.S. citizens.

Ant Financial is controlled by Chinese billionaire and Alibaba founder Jack Ma, and according to this Shearman & Sterling memo, the deal’s demise reflects both rising concerns with national security issues involving acquisitions by Chinese buyers, & an increased focus on privacy issues.  Here’s an excerpt:

The focus on China, especially on investments in the semiconductor and related industries, is well established. The Obama Administration blocked the acquisition of the U.S. subsidiaries of German semiconductor-equipment supplier AIXTRON SE by Chinese investors in 2016, and had a general policy of closely scrutinizing Chinese acquisitions in this sector. More recently, the Trump Administration stopped the acquisition of Lattice Semiconductor Corporation, an Oregon-based company, by a Chinese investor in September 2017, and senior officials have expressed concern about whether current U.S. laws on foreign investment are adequate to protect U.S. national security.

At the same time, CFIUS has over the past several years increased its focus on acquisitions of U.S. companies that have access to the personal information of U.S. citizens. The MoneyGram deal would have given Ant Financial access to the financial transactions of a considerable number of Americans. Concerns have been raised both within the Trump Administration and in Congress about whether such information would be adequately protected by foreign companies or used by foreign governments for geopolitical advantage.

The environment for Chinese deals in sensitive industries appears to be so tough that perhaps it’s not off base to paraphrase the last scene in the classic 1974 film “Chinatown” when it comes to summing up their chances of CFIUS approval – “Forget it, Jake – it’s a Chinese buyer.”

John Jenkins