CFIUS, or the Committee on Foreign Investment in the United States is a Government body focusing on the regulation of takeovers by foreign entities of assets deemed to be of national strategic importance. Committee reports to the President who makes the final decision.
The U.S. Department of the Treasury website offers the following explanation of the committee actions and objectives
CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons, in order to determine the effect of such transactions on the national security of the United States.
Merger arbitrage spreads that may be subject to a CFIUS review will have a lower DCP and subsequently a wider spread. In addition, target firms may suggest that an enquiry is necessary as a form of hostile takeover defense. Traders are advised to be aware of the total CFIUS exposure to their mergrer arbitrage portfolio.
CFIUS in Action
The actions and decisions of CFIUS are notoriously difficult to predict. Obviously, the companies involved in the merger believe they will not be subject to a CFIUS review, or they have an adequate chance of the deal being accepted. However, the committee is comprised of a number of different members from different areas of government. This results in a variety of different opinions and egos vying to be heard and understood.
The complete membership of the committee is given below. The members of CFIUS include the heads of the following departments and offices:
- Department of the Treasury (chair)
- Department of Justice
- Department of Homeland Security
- Department of Commerce
- Department of Defense
- Department of State
- Department of Energy
- Office of the U.S. Trade Representative
- Office of Science & Technology Policy
The following White House offices also observe and, as appropriate, participate in CFIUS’s activities:
- Office of Management & Budget
- Council of Economic Advisors
- National Security Council
- National Economic Council
- Homeland Security Council
The Director of National Intelligence and the Secretary of Labor are non-voting, ex-officio members of CFIUS with roles as defined by statute and regulation.
Conclusion
CFIUS then makes a recommendation to the President who then makes a decision on whether the deal will be allowed to proceed or not. This adds yet another level of complexity when forecasting the final decision. Different presidents have differing agendas and alternatives views on how to conduct foreign policy. In addition, by the time the decision is to be made, the geo-political environment maybe be somewhat different to what it was when the deal was first suggested. Even if this decision is ultimately positive, traders also need to be acutely aware of the time delay and its effect of the profitability of the trade.
NOTE: For additional information of regulatory bodies please see our list of Competition Regulators.
