DealLawyers.com Blog

I remember the first time I learned about CFIUS. It was right after the Foreign Investment and National Security Act of 2007 when CFIUS was codified. I thought the whole thing was so interesting . . . and intimidating. It’s not even an agency, but an interagency committee? Voluntary filings? The Committee can unilaterally initiate review any time – even years after closing — and unwind the transaction? Ah! Of course, it makes sense — this is national security we’re talking about!

At the time, it seemed like something many M&A practitioners rarely dealt with. Now, national security concerns are more expansive, and CFIUS risk seems to be top of mind pretty much all the time for anyone doing cross-border transactions.

The latest example of the more expansive application of national security concerns is the Biden Administration’s determination to block Nippon Steel from acquiring U.S. Steel largely on national security grounds citing the criticality of domestically-owned steel production to the country’s infrastructure, auto industry, and defense industrial base. (And, unlike many other topics, this trend may not change much with the incoming Trump Administration — President-Elect Trump has also publicly opposed the deal.) This Simpson Thacher alert says that the order was expected, given Biden Administration commentary, but followed reports that CFIUS was unable to reach a consensus in its consideration of the merger.  

While the Biden Administration’s concerns may have been specific to the steel industry, the alert says there are a number of more general takeaways for dealmakers:

– First, the Order continues the recent trends within the U.S. government to treat economic security as a core component of the country’s national security. We can expect the U.S. government increasingly to rely on these authorities to protect certain sectors and supply chains considered critical to the domestic economy, even if not traditionally associated with national security.

– Second, the decision demonstrates the U.S. government’s willingness to block a well-known firm from Japan, a country traditionally considered a key ally and diplomatic partner. While each transaction requires an individualized assessment of the potential national security and CFIUS risks, Biden’s decision is the latest example of how even investors from lower-risk jurisdictions can sometimes face deal risk.

Subsequent legal challenges to the order may also provide some interesting takeaways:

Nippon Steel and U.S. Steel filed a petition on January 6, 2025 with the U.S. Court of Appeals for the District of Columbia Circuit challenging the legality of the Order. The petition alleges Constitutional violations, as well as unlawful political influence, and asks the Court to set aside the Order . . . Determinations by CFIUS and the President are rarely litigated—the Defense Production Act states that actions by the President to prohibit a transaction shall not be subject to judicial review. Efforts seeking judicial relief in the present case will provide courts with a rare opportunity to consider the contours and limits of the President’s national security authorities.

Stay tuned!

– Meredith Ervine