Friday, April 5, 2002

Pentagon seeks approval of all foreign acquisitions of U.S. companies

The Financial Times is reporting that the Pentagon has asked for – and is likely to get – a requirement passed into law that any acquisitions over $100m of U.S. companies by foreign companies must first be reviewed and approved by the Committee on Foreign Investment in the U.S.

The CFIUS (doesn’t anyone have a good acronym anymore?) was established in 1975, but really came into effect under “41“ (aka George H.W. Bush) in 1988. Now “43“ is trying to expand their oversight authority – with the result being that just about any foreign acquisition will necessarily slow down. This is exactly what the U.S. complained about when the E.U. torched the G.E./Honeywell acquisition last year. Do as I say, not as I do, eh George? (Interestingly, the CFIUS is who slowed the NTT acquisition of Verio two years ago to a crawl – requiring NTT to extend their acquisition bid six times before finally getting approval. The problem? The FBI was worried that a foreign ISP would be less likely to cave to requests for info. You think?) Today, the CFIUS reviews less than 10% of potential acquisitions. Under the proposed rule, it would most certainly increase.

Not only has this annoyed people who should have been involved (like Treasury or Commerce), it’s likely to further annoy those pesky foreign governments (how much more will they take?).

Most frustrating – by not having any controlling rules over what the criteria are for review, the process will be fraught with uncertainty and confusion. And for companies seeking liquidity in an IPO-unfriendly world, this will most certainly be a hard pill to swallow. Wonder if those valley execs who ponied up a bunch of dough for “Dubya” are all that thrilled now?

Memo to the White House: get those pollsters working on trying to spin this one.

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