Thursday, February 4, 2016

Proposed Syngenta-ChemChina Deal Raises CFIUS Issues

by Amanda Rosenberg

Chinese state-owned ChemChina's proposed acquisition of the Swiss seed and pesticide company Syngenta likely will attract the attention of the Committee on Foreign Investment in the United States (CFIUS). CFIUS reviews transactions where a foreign person gains control over a US business. It focuses on national security issues.

There are at least two national security issues at play in the Syngenta-ChemChina deal.

First, Syngenta owns manufacturing facilities outside of Baton Rouge, Louisiana and in Houston, Texas that are registered with the Chemical Facility Anti-Terrorism Standards program under the US Department of Homeland Security, which regulates high-risk chemical facilities. These facilities likely will be classified as "critical infrastructure" for CFIUS purposes, meaning that the deal will be subject to a higher level of scrutiny. Syngenta also has a research and development facility in North Carolina. There may be other US facilities.

Second, ChemChina is a state-owned Chinese entity. Acquisitions by government-controlled entities are subject to a higher level of review than private party transactions, including a mandatory 45-day investigation after the initial review period. In addition, a Chinese buyer may face more challenges than, for instance, a British buyer. President Obama forced a divestiture of wind assets owned by Chinese nationals in 2012. The following year, the government reportedly required a change of control of the US drilling assets owned by a Canadian oil and gas company when it was acquired by the China National Offshore Oil Corporation.

An upstream acquisition of a foreign parent raises CFIUS concerns when the parent controls its US operations. The CFIUS regulations contain a very broad definition of control. Unless the US subsidiary that owns the Louisiana and Texas facilities operates independently from the foreign owner, then the transaction is subject to CFIUS review. CFIUS filings are generally voluntary, but the committee can initiate its own review if it believes a deal presents national security concerns. It also is known to request that parties submit a filing.