Securing the Nation or Entrenching the Board? The Evolution of CFIUS Review of Corporate Acquisitions

The Committee on Foreign Investment in the United States (CFIUS), which reviews transactions based on national security concerns, has recently become critical to the operation of the U.S. economy. In March of 2018, CFIUS review led to the prohibition of Broadcom Limited’s acquisition of Qualcomm Corp., which would have been the largest technology merger in history. In August of 2018, CFIUS was dramatically expanded with the enactment of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). Major transactions must now reckon with the uncertainties of CFIUS review. Created over thirty years ago as a reporting and monitoring committee, CFIUS has evolved into a formidable force with the power to review and investigate foreign investments in U.S. businesses, and to recommend that the President prohibit or order divestment of those investments. This Article traces the origins of CFIUS from its establishment in 1975 through the changes made by the 1988 Exon–Florio Amendment, the Foreign Investment and National Security Act of 2007, and now FIRRMA. The Article examines the key transactions CFIUS has considered, and CFIUS’s expansive understandings of what constitute U.S. businesses and its authority over foreign investors. In the Broadcom–Qualcomm transaction, CFIUS review was requested by target company (Qualcomm) board, and the review and resulting Presidential order operated as a powerful antitakeover defense. Turning from history to process, this Article looks closely at the ramifications of corporate boards seeking CFIUS review as a defensive measure to ward off hostile takeovers, a kind of “super poison pill.” To that end, the Article looks at mergers and acquisitions, and the longstanding conceptions of both the market for corporate control and the agency problem in corporate governance. The Article then reviews board powers and the traditional antitakeover measures, as well as the jurisprudence developed by state courts to review those defenses. CFIUS review may be deployed by corporate boards as an antitakeover device. Given the strong global M&A market, and the significant increase in CFIUS’s jurisdiction as a result of the enactment of FIRRMA, CFIUS is expected to review more transactions, including more hostile takeovers. In assessing notifications in this context, CFIUS may benefit from the jurisprudence developed by state courts. Given the amount of global capital being invested across borders, and the intensity of global security concerns, foreign investment transactions are likely to continue, and to continue to need review, for the foreseeable future. A CFIUS review process that can assess target board motivations and measures, with an experienced perspective on blocking or allowing the transaction, will help ensure that CFIUS review achieves its national security goals without doing unnecessary societal harm