Trade Law

Cree Inc. (“Cree”), the U.S.-based LED lighting and semiconductor company, announced last month that it is terminating its agreement to sell its Wolfspeed Power & RF division (“Wolfspeed”) to Infineon Technologies AG of Germany (“Infineon”) for USD $850 million. The decision to terminate the deal came shortly after Cree announced that CFIUS raised objections to the acquisition and that the parties were working within the deal structure to mitigate CFIUS’ concerns. This outcome underscores that CFIUS risk can exist in transactions involving buyers from countries that are closely allied to the United States. 

(Washington, D.C.) – Kevin J. Wolf, a former senior U.S. Department of Commerce official who served for the past seven years as Assistant Secretary of Commerce for Export Administration, has joined Akin Gump as a partner in its international trade practice in Washington, D.C., the firm announced today. He is accompanied by Steve Emme, who served for five years as Senior Advisor to Assistant Secretary Wolf.

CFIUS: Account for CFIUS risks in transactions involving non-U.S. investments in businesses with a U.S. presence

Over the past year, the Committee on Foreign Investment in the United States (CFIUS), an interagency committee chaired by the Department of the Treasury, has been particularly active in reviewing and, at times, intervening, in non-U.S. investments in U.S. businesses to address national security concerns. CFIUS has the authority to impose mitigation measures on a transaction before it can proceed. It may also recommend that the President block a pending transaction or order divestiture of a U.S. business in a completed transaction. Consequently, companies that have not sufficiently accounted for CFIUS risks may face significant hurdles in successfully closing a deal. With the incoming Trump administration, there is also the potential for an expanded role for CFIUS, particularly in light of campaign statements opposing certain foreign investments.

Political changes: Monitor the impact of major political changes, including the U.S. presidential and congressional elections and Brexit

The results of the U.S. presidential election are historic and unanticipated, and they will have significant economic, political, legal and social implications. As the nation prepares for the Trump administration, many uncertainties remain about how the incoming administration will govern. President-elect Trump has stated that he will pursue vast changes in diverse regulatory sectors, including international trade, health care, energy and the environment. These changes are likely to reshape the legal landscape in which companies must conduct their business, both in the United States and abroad.

Here is our annual list of hot topics for the boardroom in the coming year: 

1. Corporate strategy: Oversee the development of the corporate strategy in an increasingly uncertain and volatile world economy with new and more complex risks

Directors will need to continue to focus on strategic planning, especially in light of significant anticipated changes in U.S. government policies, continued international upheaval, the need for productive shareholder relations, potential changes in interest rates, uncertainty in commodity prices and cybersecurity risks.

U.S. lawmakers recently submitted a letter to the Government Accountability Office (GAO) raising concerns about increased Chinese investments in the U.S. film and entertainment industry and questioning whether the Committee on Foreign Investment in the United States (CFIUS or “the Committee”) is applying, and has authority to apply, sufficient scrutiny to these and other inbound investments. This development could be an indication that CFIUS will increase its examination of such investments, which would be consistent with the Committee’s application of evolving criteria for assessing national security concerns to deals that may not present obvious CFIUS issues. Consequently, non-U.S. investors would be prudent to consider CFIUS risks in making investments in the U.S. film and entertainment industry, as would U.S. companies seeking to divest such assets.

On February 19, 2016, the Committee on Foreign Investment in the United States (CFIUS) released its annual report to Congress. CFIUS is an interagency committee that reviews the national security risks associated with investments that could result in foreign control of U.S. businesses, known as “covered transactions.” This report summarizes CFIUS activity in 2014, which is the most recent year for which it has compiled data. Here is what you need to know:

Figures and Trends: Notices and Investigations

• Continued Rise in Number of Notices Filed with CFIUS. Companies filed 147 notices of covered transactions in 2014, up from 97 in 2013. This increase is consistent with the general upward trend since 2009 and a high volume of mergers and acquisitions in 2014.
• Decrease in Percentage of Investigations. In 2014, CFIUS investigated 35 percent of covered transactions, whereas, in 2013, CFIUS investigated 49 percent of covered transactions. The 2014 investigation rate of 35 percent represents a return to the level of investigation activity in 2009–2012. According to CFIUS, the spike in cases subject to investigation in 2013 was due in part to the U.S. government’s shutdown in October 2013, which resulted in a backlog of cases during that year.

The Bureau of Economic Analysis of the U.S. Department of Commerce requires all U.S. persons that own or control more than 10 percent of the voting securities (a “Direct Investment”) of a “foreign” business enterprise to report on its BE-10 Benchmark Survey of U.S. Direct Investment Abroad for the fiscal year 2014. Form BE-10 is due by May 29, 2015, for respondents reporting fewer than 50 Foreign Affiliate forms (as discussed below) and June 30, 2015, for 50 or more forms. Official BE-10 forms and instructions can be found here, on the Bureau of Economic Analysis website.