PHIA Koninklijke Philips NV

   (FROM THE WALL STREET JOURNAL 1/25/16) 
   By Shayndi Raice 

LONDON -- The U.S. government body that screens corporate takeovers for security concerns is scrutinizing an increasing number of high-profile deals in which neither party is American.

The group, known as the Committee on Foreign Investment in the U.S., or CFIUS, has long examined deals in which foreign companies, especially Chinese ones, try to purchase U.S. assets. But a recent surge in Asian takeovers of European companies that own businesses in the U.S. has put the panel in the delicate position of trying to police overseas deals.

On Friday, Philips NV said it was terminating its $2.8 billion deal to sell its lighting-components and automotive-lighting business to Go Scale Capital, an investment fund led by Chinese venture-capital firm GSR Ventures.

That deal -- with neither of the principal actors being American -- wouldn't be considered a likely target for CFIUS to inspect for potential impacts on U.S. national security. But the Philips business that is on the block, called Lumileds, has a large portfolio of U.S. patents for light-emitting diodes, or LED, and a sizable presence in the U.S. through manufacturing and research-and-development facilities in San Jose, Calif. That, apparently, was enough to attract the attention of CFIUS, which blocked the deal.

CFIUS's increasingly proactive approach toward deals that don't directly involve U.S. parties is causing angst among some European executives, deal makers and lawyers.

CFIUS sometimes exerts its power "in a way that observers kind of scratch their heads and say, 'Really?' " said Robert Profusek, the global chair of mergers and acquisitions at the law firm Jones Day. By their logic, he added, "almost anything is a CFIUS deal."

CFIUS doesn't itself have the power to reject transactions. If it spots potential problems, it can recommend that the companies modify the terms of their deal, for example, by shedding U.S. assets, or it can recommend that the U.S. president nix the transaction. A presidential veto has only happened twice; more often, as was the case with Philips, the companies abandon transactions that CFIUS frowns upon.

Besides the scuttled Philips deal, last year's $16.6 billion merger between the Finnish wireless-equipment company Nokia Corp. and French firm Alcatel-Lucent SA underwent CFIUS scrutiny. Alcatel-Lucent had a joint-venture with China's Shanghai Bell. The deal ultimately went forward, though it is unclear if the parties had to make concessions to ensure CFIUS's backing. The details around CFIUS's scrutiny remain secret.

Experts on the government-review process believe a sale of Swiss pesticides giant Syngenta AG could also get caught in a CFIUS review if a deal proceeds with China National Chemical Corp. or ChemChina, because of Syngenta's U.S. holdings. Syngenta declined to comment.

The increased oversight comes as regulatory and national-security scrutiny of deals globally has become more common, increasing what companies need to do to get deals across the finish line.

After General Electric Co. went after France's Alstom Group in 2014, for example, the French government expanded the scope of its national-security reviews of foreign acquisitions to include a broader range of industries. No deals have yet been killed, but several have been scrutinized, said one CFIUS lawyer.

"National-security reviews are expanding around the world and the national-security issues are broader as the supply chain globalizes," said Ivan Schlager, a CFIUS attorney with the law firm Skadden, Arps, Slate, Meagher & Flom LLP.

CFIUS's mandate hasn't changed. What has changed is the nature of deals that are being struck, as globalization means U.S. assets could end up in the hands of a wider array of companies.

(END) Dow Jones Newswires

January 25, 2016 02:47 ET (07:47 GMT)

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