M&A 2019 Annual Review

Under the regulations, a non-U.S. entity investing in a U.S. company (including a non- U.S. company with a U.S. business) will need to determine (i) whether the target company falls within the regulations’ definition of a technology, infrastructure, and data (TID) U.S. business, and (ii) whether the transaction will afford the foreign investor certain key rights, such as access to “material nonpublic technical information,” board membership or observer rights, or involvement in substantive decision-making regarding the target’s TID assets, regardless of whether the investor otherwise obtains “control” (as defined broadly by CFIUS). The regulations require mandatory filings in transactions where a foreign government has a “substantial interest.” • Reviewing Closed Deals and Punishing Violations – CFIUS actively reached out to companies involved in transactions potentially covered by CFIUS that were not notified. For example, CFIUS forced Beijing Kunlun Tech Co. Ltd. to divest its 2016 acquisition of the dating app company Grindr LLC, apparently based on concerns about the Chinese government’s potential exploitation of sensitive data relating to U.S. citizens, and pressured a partially Russian-backed investment fund, Pamplona Capital Management, to divest its minority stake in a U.S. cybersecurity firm. CFIUS also imposed the first-ever civil penalty – $1 million – for repeated violations of a mitigation agreement. • Emerging and Foundational Technologies – The Department of Commerce is working on regulations to identify “emerging and foundational” technologies, following its November 2018 Advance Notice of Proposed Rulemaking seeking comments on 14 categories of proposed emerging technologies. 10 • Actions Against Specific Actors – The Department of Commerce added Huawei, SenseTime, Hikvison, and other companies to its “Entity List,” thereby prohibiting these entities from obtaining any hardware, software or technology that is subject to the U.S. Export Administration Regulations. 11 The Department of Defense (and other agencies) prohibited federal agencies from buying “covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system” from designated Chinese entities, including Huawei and ZTE. 12 • Supply Chain Actions – The Department of Commerce proposed regulations to address certain information and communications technology and services transactions that pose an undue risk to critical infrastructure or the digital economy in the U.S., or an unacceptable risk to U.S. national security or the safety of U.S. persons. 13 • U.S.-China Trade Considerations – It remains to be seen what impact the ongoing trade dispute between the U.S. and China will have on the use of the administration’s national security toolbox or whether new legislation may be proposed. The January 15, 2020 signing of a “Phase 1” trade agreement with China may alleviate trade tensions and may result in a broader trade agreement. However, the national security concerns of the U.S. government pre-date the current trade war and likely will persist regardless of whether the broader bilateral relationship improves. 6 FOCUS IN ASIA CHANGES M&A activity in Asia Pacific outside Japan decreased, with outbound and domestic/intra-regional M&A value down by 29.5% and 33.5%, respectively, and inbound M&A value up only 1.3% for Q1-Q3. 14 Japan saw overall M&A deal value decline, with inbound and domestic activity increasing but outbound activity falling. 15 “It remains to be seen what impact the ongoing trade dispute between the U.S. and China will have on the use of the administration’s national security toolbox or whether new legislation may be proposed.” 5 MORRISON & FOERSTER 2019 M&A ANNUAL REVIEW