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Antitrust legal quick tips. Foreign investment review: five key antitrust tips

In the face of evolving national security concerns, the race for technology leadership, shifting geopolitical dynamics and record levels of Chinese investment, many of the world’s leading economies have enacted, or are considering, new rules to expand the scope of government review and make foreign direct investment increasingly restrictive.

A string of recent high-profile foreign investment decisions, most notably the blocking by President Trump of Broadcom’s proposed takeover of Qualcomm, also contribute to a very challenging environment for foreign direct investment. Against this backdrop, companies contemplating cross-border M&A must be aware of foreign investment review regimes and plan accordingly.

Tip 1: Conduct a foreign investment assessment early in deal planning

  • Foreign investment regimes cover a wide range of transactions, sometimes including minority investments, joint ventures and changes quality of control (eg a JV partner acquiring its partner’s stake).
  • Thresholds for intervention are often vague and give the authority a wide discretion to take jurisdiction. Asset value, investment value, level of control acquired, strategic importance and sensitivity of the industry sector are examples of common triggers.
  • Some foreign investment regimes are standalone, while others are part of the antitrust merger review process. Even outside a formal regime, parties can still come under pressure from governments and stakeholders to address foreign investment issues.
  • Early assessment provides the parties and their advisers greater deal certainty and, if needed, the time to craft an effective risk management strategy.

Tip 2: Identify sensitive sectors

  • National security has historically been the focus of most foreign investment reviews. However, in light of technological advances and shifting political landscapes, some governments have begun considering a wider range of potential national security threats and have grown increasingly wary of foreign investment in critical sectors, especially from state-owned enterprises.
  • Sectoral connections to national security are becoming more tenuous. In many jurisdictions, the idea of national security has expanded to include concepts such as critical technology (eg semiconductors, robotics, data storage), access to sensitive personal data, food security, healthcare (eg biosecurity), infrastructure (including airports, energy and nuclear facilities) and real estate near sensitive military sites.
  • Authorities in many jurisdictions are not limited to national security considerations but instead have discretion to assess transactions with respect to general public interest. These regimes will often consider ‘industrial strategy’ and may be more likely to review a foreign takeover of a ‘national champion’, or one that will result in a head office or a significant number of jobs moving out of the jurisdiction.

Tip 3: Consider the buyer (and your co-investors)

  • When choosing a co-investor or preferred bidder, closer due diligence on their ownership structure may be needed to properly identify risks. In light of changing political concerns, foreign investment regimes are more likely to take an interest in transactions involving state-owned enterprises or other government-owned or -controlled entities, such as sovereign wealth funds. Even private investors that might be influenced by the government of a state-directed economy may receive heightened scrutiny.
  • Although many foreign investment regimes apply to all foreign investors irrespective of where they are based or whether they are state-owned, historically, companies from certain jurisdictions (eg China, Russia, the Middle East, or any country subject to embargoes) attracted the most attention. But foreign investment review is no longer just about investors from these jurisdictions; companies from a broad range of countries have been the focus of recent in-depth foreign investment reviews.

Tip 4: Plan the deal timeline

  • If you anticipate substantive foreign investment issues, be sure to build enough flex into your deal timetable. Confidently predicting the timing and outcome of the foreign investment review process has become increasingly difficult for many reasons:
    • The statutory timelines of different foreign investment regimes can vary wildly, from one to 12 months or more, and many regimes do not start the clock until a submission is deemed complete.
    • Given the recent and rapid regulatory changes in many jurisdictions, some authorities responsible for foreign investment review have become overburdened and unable to approve transactions within the statutory timelines. Rather than risk a prohibition decision or refile the submission, parties often voluntarily agree to extend deadlines, sometimes for many months.
    • Foreign investment regulators can issue demanding information requests on both buyer and target, and parties may require considerable time to respond. To the extent possible, try to constructively engage the other side as early as possible so that it appreciates the timing concerns involved and is willing to co-operate.
    • Many regimes allow informal and sometimes even anonymous consultation in the early stages of a transaction. If available, take advantage of this to allow the authority more time to review and potentially avoid extensions (although be sure to have a defined strategy before approaching authorities).
    • Continuous engagement with the reviewing authority may also help the parties to predict more confidently when a decision will be reached.

Tip 5: Design a public relations narrative early in the game

  • As foreign investment review is often heavily politicised, parties may sometimes need to reach out not just to regulators, but also key stakeholders, politicians and unions among others to reduce deal uncertainty.
  • Negative publicity can generate unfavourable public opinion. Where appropriate, engage public relations/government affairs advisers early to set the narrative.
  • Deploy integrated teams of lawyers, government affairs advisers and communications consultants to effectively manage political engagement.