CFIUS reviews are confidential and neither the outcome nor the reasoning is released to the public, except in cases involving presidential orders, so all discussion of recent cases is limited to information that has been publicly discussed by parties or media accounts.
Lattice Semiconductor Corporation
On 13 September 2017, President Trump blocked the US$1.3 billion proposed acquisition of US chip manufacturer Lattice Semiconductor Corporation by Canyon Bridge Capital Partners, a US-headquartered private equity firm. The Canyon Bridge investment group included a company with ties to Chinese state-owned entities. The Trump administration’s statement announcing the decision specifically referenced Chinese government involvement in the transaction, among other national security concerns, as a reason for blocking the transaction.
Canyon Bridge and Lattice filed a formal joint notice with CFIUS in late December 2016. Over the next eight months, the proposed transaction went through three 75-day CFIUS review cycles. Finally, Lattice disclosed that CFIUS was poised to recommend that President Trump block the transaction. Lattice and Canyon Bridge opted to have President Trump review the proposed acquisition directly instead of abandoning it as is typically the case when CFIUS recommends that the president block a transaction.
Despite the parties’ numerous offers to undertake mitigation, on 13 September 2017, President Trump blocked the proposed transaction. Concurrent statements on the decision by President Trump and Treasury Secretary Steven Mnuchin cited four national security justifications for the decision: the risk posed by the potential transfer of intellectual property to a foreign party, the Chinese government’s role in the proposed acquisition, the importance of the semiconductor supply chain to the US government and US government use of Lattice products.
The Lattice decision was somewhat counter-intuitive because of the seemingly low-tech nature of Lattice’s products, but it demonstrated the importance of supply chain integrity (the reliability of even low-tech suppliers) to CFIUS.
On 12 March 2018, President Trump blocked the proposed US$117 billion hostile acquisition of Qualcomm Incorporated, a US chipmaker, by Broadcom Limited, a Singapore-incorporated company headquartered in the United States. Although Broadcom is based in Singapore, it is not obviously a foreign acquirer under CFIUS’s regulations because its primary stock exchange and principal place of business are within the United States. CFIUS moved with unprecedented aggressiveness to block the deal before it was signed and before Broadcom reincorporated in the United States. President Trump issued an order blocking the deal days before Qualcomm shareholders were set to replace a majority of directors with persons nominated by Broadcom.
CFIUS’s reasoning supporting the conclusion that the acquisition would impair US technological competitiveness was also unprecedented. The parties released a letter from the Treasury stating that CFIUS was concerned that acquisition by Broadcom would weaken Qualcomm’s research and development given the former’s ‘private equity style approach’ and reputation for cost-cutting. CFIUS’s stated justification was that this would reduce Qualcomm’s long-term competitiveness and thus leave an opening for China to take the lead in 5G technology standards. Surprisingly, other than a passing reference to Broadcom’s relationship with unnamed foreign third parties, the Treasury letter did not set out any traditional national security concerns. Instead, the Committee appears to have focused on whether or not the proposed business plan for an entity would be successful. This move and the rationale behind it marks new territory for an entity not historically concerned with industrial policy.
On 27 March 2019, press reports emerged that CFIUS was forcing the Kunlun Group, a China-based technology firm, to divest its wholly owned US subsidiary, the dating app Grindr, because the group’s continued ownership constituted a national security risk. While no official statement was released, CFIUS was likely concerned with the sensitive personal data that Grindr collects about its US users, potentially including US military and intelligence personnel or other persons with access to information of interest to foreign governments and potentially vulnerable to blackmail.
Grindr operates ‘a geosocial networking and online dating application geared towards gay, bi, trans, and queer people’ with a reported 27 million users that are required to provide potentially personally identifiable information (eg, account credentials, unique device identifiers, and last known device locations). Users can also voluntarily provide additional personal information such as ethnicity, age, height, weight, relationship status, and health information. As a result, Grindr collects and maintains a substantial amount of sensitive US personal information, which is a key area of concern for CFIUS.
Notably, CFIUS’s decision came more than three years after Kunlun Group acquired 60 per cent ownership and effective control of Grindr in January 2016. In January 2018, the group acquired the remaining ownership interests of Grindr and replaced the CEO and founder with the group chairman, who is a Chinese national. Neither transaction was notified to CFIUS. Kunlun Group publicly stated in May 2019 that it had reached an agreement with CFIUS prohibiting further access to information about Grindr’s users and setting a deadline for sale of the app by June 2020.
The forced divestiture of Grindr is an important reminder that CFIUS remains focused on protecting the sensitive personal data of US citizens; has the power to upend closed deals that have not been cleared by the Committee; and is dedicating increased resources to the review of transactions that are not notified to CFIUS.
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