Business Law Prof Blog

NYSE & Archipelago Merger Gets SEC Approval

Yesterday, the SEC approved the merger between the NYSE and Archipelago Holdings, Inc.  The deal is supposed to close on March 7, 2006 and the combined company, NYSE Group Inc., will trade under the symbol NYX.

Our Coverage:

NYSE Merger with Archipelago Holdings (May 3, 2005)

NYSE/Archipelago Deal (November 5, 2005) by Bill Sjostrom

NYSE Spin on Shareholder Primacy (November 8, 2005)

NYSE Settles (Nov. 16, 2005)

Media Coverage:

Washington Post

Bloomberg.com

FoxNews.com

Associated Press via Yahoo!

Additional Coverage:

Publically Owned Stock Exchanges: An Unexpected Consequence -- A User Backlash

My Editorial on the Dubai Deal

For my editorial on the Dubai Deal see...

     Dubai Ports World, owned by a Dubai prince, has purchased a London company, Peninsular & Oriental Steam Navigation Company of London for $6.8 billion.  The deal is set to close this week.  Do we care?  You bet.

     P&O operates port terminals in Philadelphia, Baltimore, Miami, New Orleans and Newark.  Dubai is one of the seven emirates that form the federation known as the United Arab Emirates (UAE). 

     Opposition to the acquisition exploded. “We are being played for suckers.  United States buys UAE oil and UAE uses the revenue to buy our ports so Arab terrorists can hide a nuclear device in a shipping container coming from abroad,” they shouted.  The media played on this potent brew of fear over safety, of foreign economic domination, and of Arabs.

     Opposition to the acquisition has attracted bipartisan congressional support.  Members of Congress have proposed a bevy of Congressional bills to halt the acquisition and President Bush has said he will veto any that are passed.  The President has agreed, however, to more fully brief Congress on why he believes the acquisition does not threaten national security.

    After more digging by the press, the public woke up to some potentially distressing facts.  Eighty percent of the terminal operations in the United States are already under the control of foreign operators.  The countries largest terminal operators are from Hong Kong (China), Singapore, Denmark, Germany and Taiwan. If UAE had not purchased London based P&O, a Singapore company (also state owned) probably would have. 

     Some of the port companies are state-owned; some are publicly traded; and some are owned by wealthy families.  All the companies are huge, enjoying the economies of scale from operating efficient, low-cost port operations all over the world.

     Calmer heads noted, however, that the commercial port operators do not own the ports; they lease terminals.  Port management and port security remains in United States hands. The federal customs officials, for example, will remain responsible for inspecting all cargo and for protecting national security.  Terminal operators control when a ship berths, the use of loading cranes, relations with stevedores unions, and contracts with domestic shipping concerns.

     Economists caution that international investment goes both ways.  For our companies to enjoy the opportunity to invest abroad, we must allow foreign companies to invest here.  Blocking local investments is a prelude to a trade war in which all the participants lose economic vitality.             

    The dispute has also bought focus once again on the otherwise obscure Committee on Foreign Investment in the United States (CFIUS).  CFUIS is a multi-agency committee with twelve delegates from other federal agencies, chaired by the Secretary of Treasury, that investigates the national security implications of foreign acquisitions of United States assets.  The President empowered by the Exon-Florio Amendment of 1988 to block acquisitions that impair national security has delegated investigative powers to the committee.

     The role of CFUIS was also much discussed last year in the CNOOC attempted acquisition of Unocal. CNOOC was a Chinese owned oil company.

     CFIUS reviewed the Dubai Port World acquisition and decided that it did not “affect national security” and therefore did not require a statutory “formal investigation.”  Had CFUIS decided that the contrary, that the acquisition “could affect national security,” it would have stayed the closing, conducted a formal 45 investigation, and reported its recommendations to the President. 

     The President decides to block or allow the acquisition to close and must report his decision, with reasons, to Congress.  Congress, if in disagreement with the President’s approval, could, in theory, pass legislation to block the deal that would have to survive a Presidential veto. 

     Several members of Congress are angered by the failure of CFIUS to do the formal investigation, particularly since Dubai Port World is a foreign state-owned company and the Exon-Florio Amendment has special procedures for state-owned company acquisition.

     The problem with Exon-Florio Amendment has always been the lack of a specific definition of “national security.”  This not only affects the ultimate application of the definition, which lies in the hands of the President, but also affects the CFIUS decision to trigger the formal investigation procedure. 

     I believe the cooler heads will prevail and the acquisition will close.  Congress may, however, take the opportunity to revisit and revise the CFIUS approval procedure, which would be a welcome development.  A sensible operation of this procedure is very important to national safety and our economic health as well.              

The Dubai Deal Compromise

The firestorm over the acquisition by Dubai Ports World of a London based port terminal operator that controls terminals at six American ports has entered another phase.  The Dubai company has agreed to delay closing the acquisition until CFIUS has conducted a 45 day "formal investigation."  CFIUS reports a recommendation to the President, who, under Exon-Florio, decides whether to go along and reports his decision to Congress.  Absent significant new data, CFIUS is likely to report to the President that he need not block the deal and the President will agree.  The ball will then be squarely in Congress's court.  Many hope the that delay and new report with help defuse the situation.  Several members of Congress have discovered, after jumping on the public outcry created by the deal, that blocking this deal on raw protectionism will generate a myriad of problems.  At issue now is whether the public protest, once started, will be alleviated by a procedural, political face saving solution.  Can the genie be put back in the bottle?