Public interest or protectionism? Navigating the new normal Contacts Public interest or protectionism? Navigating the new normal Your key public interest and foreign investment contacts Introduction Nigel Blackaby Christine Laciak Arend von Riegen Public interest and foreign investment screening is nothing new. Disputes, Litigation and Special Counsel – Foreign Global Transactions Partner, Arbitration Partner, Washington DC Investment, Washington DC Frankfurt All of the largest economies have had some form of review process in E [email protected] E [email protected] E [email protected] place for many years. However, recent times have seen a rapid intensifying of these controls: since 2015, 11 G20 countries, including Heiner Braun Mary Lehner Alan Wang Global Transactions Partner, Antitrust Partner, Global Transactions Partner, all of the G7, have enacted or set in motion more restrictive public Frankfurt Washington DC Beijing interest or foreign investment measures. E [email protected] E [email protected] E [email protected] Shawn Cooley Alastair Mordaunt Kaori Yamada As a result global M&A is more complex and Instead we have focused on those themes where Special Counsel – Foreign Antitrust Partner, Antitrust Partner, deal execution risk is higher than ever. A tricky the landscape for merging companies has Investment, Washington DC Hong Kong Tokyo regulatory process can have a huge impact on changed significantly over recent years and, based E [email protected] E [email protected] E [email protected] deal value, whether through delays to closing on our experience, how this new landscape can or reducing expected deal synergies. be successfully navigated within a deal timetable. Pascal Cuche Sylvia Noury Hazel Yin Global Transactions Partner, Disputes, Litigation and Antitrust Partner, In our experience, although the impact of public Paris Arbitration Partner, London Beijing interest or foreign investment restrictions can Key trends E [email protected] E [email protected] E [email protected] greatly increase uncertainty for companies, it Not only are more countries introducing public is possible successfully to navigate these issues interest and foreign investment controls, but John Davies Richard Perks Gian Luca Zampa by building them into deal planning from the the sectors and types of transaction those rules Antitrust Partner, Global Transactions Partner, Antitrust Partner, outset. It can be helpful to engage with the address are also expanding in response to London and Brussels Hong Kong Rome relevant authorities at an early stage, and it political pressure: E [email protected] E [email protected] E [email protected] may be necessary to take a creative approach • a wider range of investors is becoming affected. to remedy planning by building it into the Michele Davis Jérôme Philippe The rise of protectionist sentiment and a Many thanks to the Antitrust Partner, Antitrust Partner, intended deal structure. rapidly changing economic and geopolitical following contributors: London Paris Although regulatory processes vary greatly across environment mean that screening rules are being applied against investors from any E [email protected] E [email protected] Bowmans jurisdictions, there are many common concerns. T +27 11 669 9000 In this guide we have taken a thematic approach third country, not just those from jurisdictions Bruce Embley Piers Prichard Jones to share some of our lessons learned, also drawing perceived to be particularly ‘risky’, and Global Transactions Partner, Global Transactions Partner, Shakti Wood on insights from some of the firms we have including domestic acquisitions in some cases; London London Competition Partner, worked with on major cross-border matters in E [email protected] E [email protected] Johannesburg recent years. We have chosen the themes based G7 G20 on those issues that we have seen giving rise to Natasha Good Julian Pritchard Brunswick Group Global Transactions Partner, Global Transactions Partner, T +32 2 235 6510 public interest and foreign investment concerns London London more frequently, either in response to new E [email protected] E [email protected] Sir Jonathan Faull challenges (such as the rapid development of Partner and Chair of technology), or due to the cross-fertilisation of Kathleen Healy Frank Röhling European Public Affairs, Brussels existing ideas across a much wider spread People and Reward Partner, Antitrust Partner, Philippe Blanchard of jurisdictions. This guide does not cover areas London Berlin Managing Partner, Brussels where sector-specific regulation is already mature E [email protected] E [email protected] and widespread (such as telecoms), or media Juliane Hilf Noah Rubins Clayton Utz plurality, which will already be familiar territory Disputes, Litigation and Disputes, Litigation and T +61 2 9353 4000 (as seen in the Comcast and Fox tussle for Sky in Arbitration Partner, Düsseldorf Arbitration Partner, Paris the UK, which trod a well-worn path). 100% 55% Kirsten Webb E [email protected] E [email protected] Competition Partner, Sydney Thomas Janssens Christiaan Smits Rory Moriarty Countries that have recently Antitrust Partner, Head of EU Regulatory and Corporate Partner, Sydney strengthened, or are considering new, Brussels Public Affairs, Brussels measures on foreign investment Matthew Battersby E [email protected] E [email protected] Senior Associate, Sydney Freshfields Bruckhaus Deringer LLP 2 3 Introduction Public interest or protectionism? Navigating the new normal • the range of industry sectors affected is Similarly, the proposed UK reforms would growing. On the target side, public interest allow the government to intervene in an or foreign investment screening increasingly acquisition of assets that might pose a risk targets deals that are outside the ‘obvious’ to national security purely through their national security and defence sectors. The list proximity to sensitive sites (a concept that is of critical sectors in many jurisdictions can already applied in the US, as seen in CFIUS’ be extensive, although the detailed nature intervention in Ralls Corporation’s acquisition of the products and services covered may of a wind farm project near to a Department not be clearly defined. This can make of Defense site); and Protectionism seems to be a trend predicting whether and where a target may • overall, the trend is for governments to be worldwide. Governments strengthen provoke scrutiny difficult for acquisitive more willing to intervene, backed by a rise in companies, particularly in the early planning protectionist sentiment and perceived risks to stages, without full access to the target’s national security or the public interest around their screening powers to protect business people; the globe. Although the core rationale for most • a wider range of transactions is triggering controls is national security, in practice the sensitive assets and businesses. interest. Public interest and foreign investment scope of what constitutes a threat to that regimes will often have lower thresholds security appears to be increasing. This results in a step change in the than ‘traditional’ merger control (seen in the The impact of these trends is clear. On our own recent UK changes, which catch acquisitions number of deals being impacted major M&A mandates, we have seen a more than of targets in particular sectors with more than 30 per cent increase in deals affected by public £1m of turnover, compared to £70m for all by foreign investment control interest or foreign investment considerations in other sectors) or have no thresholds at all recent years. In addition, whereas companies are (as in Germany or the US, where there is no considerations. These risks must be generally well versed in merger control processes, minimum turnover requirement). They also public interest or foreign investment reviews often capture minority shareholdings (eg under bring new challenges for acquirers and targets handled right from the outset – its existing authority the Committee on alike, including the following. Foreign Investment in the United States even more so as the underlying (CFIUS) has reviewed acquisitions of as low • Timing delays caused by a combination of as 10 per cent of shares,1 and pursuant to understaffed agencies and more in-depth concepts of national security and recently enacted reforms could review an investigations. This can be a gating issue investment of almost any size in certain for transactions with no antitrust issues, public order are ever evolving and not critical or sensitive businesses); particularly given the longer timescales (and, in some cases, lack of formal time • we are seeing authorities learn from each other limits) applicable to public interest or agnostic to policy considerations. across jurisdictions and cross-fertilise ideas foreign investment reviews. in order to expand the scope of their own regimes. For instance, we have seen authorities look to the experience of their counterparts in other jurisdictions in expanding the lists Juliane Hilf of technologies considered to be sensitive. 1 CFIUS reviewed the proposed 10 per cent joint investment by NavInfo, Tencent Holdings and GIC Pte proposed in HERE