M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, July 19, 2007

Verizon/Vodafone and the CFIUS Card

The Financial Times yesterday had an interesting article reporting that "sources" assert that a rumored Vodafone takeover of Verizon would likely entail very close scrutiny by CFIUS.  CFIUS stands for the Committee on Foreign Investment in the United States, an inter-agency committee chaired by the Secretary of Treasury.  It is charged with administering the Exon-Florio Amendment.  This law grants the President authority to block or suspend a merger, acquisition or takeover by a foreign entity if there is “credible evidence” that a “foreign interest exercising control might take action that threatens to impair the national security” and existing provisions of law do not provide “adequate and appropriate authority for the President to protect the national security in the matter before the President."  The President has delegated this review process largely to CFIUS. 

I am not sure about the national security implications of a Verizon takeover by Vodafone.  But on July 11, Congress passed The National Security Foreign Investment Reform and Strengthened Transparency Act.  The bill is currently sitting on the President's desk for almost certain signature.  The bill would enhance the CFIUS review process, and add to the factors for review critical infrastructure and foreign government-controlled transactions.  A Verizon/Vodafone transaction would now likely fall under the former category.  And, of late, CFIUS has been much more attentive to foreign takeover transactions.  According to one news report, CFIUS considered 113 transactions in 2006, up 74 percent from the previous year.  And CFIUS conducted seven second-stage investigations in 2006, equaling the number of the previous five years combined. 

Whether a Vodafone/Verizon transaction actually occurs and is reviewed by CFIUS is uncertain.  But given the political atmosphere and the pending bill, an extended review of any such transaction is more likely than ever.  And Verizon is likely to make use of this fact in order to ward off any unwanted Vodafone bid (they may have even planted this FT story).  Expect more targets to try a similar strategy in the future, playing the CFIUS card to deter foreign acquisitions and use it as an anti-takeover device when the unsolicited acquirer is a non-U.S. entity.  Hopefully, CFIUS itself will be able to sort through these cases appropriately and prudently without undue scrutiny, but more likely this enhanced CFIUS scrutiny will deter some foreign bidders to our detriment.    

For a summary of the final legislative provisions of the CFIUS reform bill, see this client memo by Wiley Rein here.  For more on Exon Florio and the CFIUS process see my prior posts:  CFIUS Reform to Become Law; GE, The Saudis and Exon-Florio; and The Politics of National Security.


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