Chinese companies have proposed several high-profile
acquisitions of US companies this year. But the US foreign
investment and antitrust regimes are challenging for those
unfamiliar with US law.
Political opposition to deals such as China National Offshore
Oil Corporations (Cnooc) $15 billion acquisition of
Nexen, and even expansion of Chinese telecommunications
companies ZTE and Huawei, mean that Chinese companies are
looking at Europe and Australia for less-troublesome
Lawyers experienced in cross-border M&A agree, however,
that with careful planning and a commitment to cultural
understanding the US is not a difficult place to do
Chinese investors shouldnt feel that theyve
been targeted unfairly, said Sean Tai, partner at Paul
Hastings in Shanghai. He stressed that the US legal system is
different to Chinas, and professional guidance with US
investments is a necessity.
Some areas may have more rules and regulations so they
might require a longer time and more legal and financial
advisors to get things done, which can frustrate people,
Charles Ching, a Hong Kong-based partner at Freshfields
Bruckhaus Deringer, said it is important to plan each
transactions work stream ahead of time in
particular, the various regulatory processes on both sides of
the Pacific. He recommended early assessments of potential
regulatory concerns and how to address them from the legal,
commercial and even political perspectives.
Political opposition in sensitive
While most industries are open to foreign investment, there are
exceptions for strategically important areas such as military
or telecommunications. The USs investment regime is
comparable to that of Canada or Australia, Tai added.
The Committee on Foreign Investment in the US (Cfius) can
investigate a transactions impact on national security.
For any problematic transactions the Committee can require
changes or, if it thinks the deal should be blocked, refer it
to the US President . Cfius will first receive a formal notice
of a proposed transaction, after which it has 30 days to
determine whether it will carry out a full investigation.
Cfius has occasionally blocked deals, and recently ordered a construction halt on a wind farm in Oregon owned by
senior executives of Chinese company Sany Group. In
February 2011, Cfius informed Huawei that it should unwind its
purchase of certain assets from 3Leaf Systems, a
California-based cloud computing company.
But a larger concern is the US political environment. Sources
agree that these transactions are especially polarising in an
election year, and that politics play a significant role in
high-value deals. For example, US politicians condemned
Cnoocs 2005 acquisition of Unocal, which Cnooc called off before the completion of Cfius
review. Cnoocs acquisition of Nexen is under Cfius review but has already been criticised by
Again, counsel recommend planning ahead. Its
essential to manage, as part of the Cfius process, how the deal
is perceived as a matter of political and public opinion, which
could in turn affect the Cfius process for the particular
deal, said Ching. Perception and politics matter,
and it is better to tackle the issues upfront and be proactive
in addressing them.
Auction processes and government
Acquisitions via auction can be difficult for Asian corporates
because of the requirement for speed and certainty. Counsel
involved in inbound US deals have cited auctions as being
particularly challenging in deals such as Marubenis acquisition of Gavilon.
Marubenis auction process was challenging because of its
fast pace. But Chinese corporates looking towards outbound
investments must contend with the speed of the transaction as
well as numerous Chinese government approvals.
Ching warned that US targets dont necessarily understand
the various PRC approvals National Development and
Reform Commission (NDRC), Ministry of Commerce of the
Peoples Republic of China (MOFCOM), State Administration
of Foreign Exchange (SAFE), State-owned Assets Supervision and
Administration Commission (SASAC) for SOEs and others a
PRC investor needs to obtain before closing its US
US targets initial instinct may be to view these
approvals as political outs that give the PRC investor too much
optionality, which may push them to do a deal with another
investor at lesser value but with greater deal certainty,
His advice follows the same theme of being prepared. He advised
that PRC investors bridge the differences in perception on both
sides by being upfront with US targets early on, and educating
them about various approval processes. Moreover, they should be
transparent on how they intend to approach the approval
processes to minimise targets concerns on deal
Many issues regarding Chinese companies inbound US
M&A transactions stem from a lack of planning and cultural
understanding, although deals are also affected by
uncontrollable factors such as political will.
But its important to note that many large deals complete
in less-sensitive sectors. Dalian Wanda Groups acquisition of AMC
Entertainment Holdings, which created the worlds
largest cinema chain, is one example. In those areas, the US
approval process is generally relaxed.
Despite a few high-profile transactions being derailed, Tai
said the US remains an attractive target for Chinese investors:
I dont think the legal or political environment, in
general, is turning away foreign investors at all.
See here for IFLRs coverage of Ralls v Cfius,
and what it signals for US security review
And here for our coverage of how Cnooc structured its
bid for Nexen to obtain Investment Canada Act approval