New U.S. Foreign Investment Rules Endorse Broad Restrictions
By Scott M. Flicker, Tara K. Giunta, Kaycee M. Sullivan and Christopher T. Timura
Foreign investors are starting to run into a significant barrier, in the form of the Exon-Florio statute. A twenty-year-old law, Exon-Florio empowers the President to block or alter terms of any merger, acquisition or takeover where there is credible evidence that the foreign entity exercising control might take action that threatens national security. The escalation of the Exon-Florio approval process and the broader array of deals to which it is being applied requires that parties and advisors to any foreign investment in an existing U.S. company (greenfields projects remain beyond the scope of Exon-Florio) make provisions in the deal structure and timeline for a potentially long and rigorous U.S. Government review if they believe their transaction may be subject to the law. And now, new rules proposed by the U.S. Department of the Treasury codify and formalize the heightened scrutiny to which these deals are subject. The new rules endorse a broad application of Exon-Florio, impose significant additional reporting and review procedures, and generally ensure that the burden and delay to which many deals have been subject will continue.