Will CFIUS Review Inbound M&A Transaction to Acquire Hummer?
In a headline-grabbing inbound acquisition deal, General Motors Corp. and Sichuan Tengzhong Heavy Industrial Machinery have reportedly reached definite agreement on the terms of the sale of GM’s Hummer Brand by early 2010 for approximately $150 million. According to a Reuters report appearing in The New York Times, Tengzhong has begun to seek Chinese regulatory approval for its purchase of the Hummer brand, Hummer trademark and manufacturing expertise. The report surmises that three Chinese regulatory bodies – the Ministry of Commerce, the National Development and Reform Commission and the Ministry of Industry and Information Technology. In our post of last June 15, we noted that Chinese regulators could have a significant role in the purchase.
There also are questions as to what U.S. regulatory approvals may be required. Reuters reports that approvals from U.S. regulators are required, but doesn’t specify which regulators. Although far reduced in size from the original $500 million estimate, the $150 million price exceeds the minimum size for filing with the antitrust regulators in the Department of Justice and the Federal Trade Commission. There seem to be few tangible assets changing hands – no plants, no real estate, no equipment. The reports suggest that only intangibles are being bought and sold. Therefore, the key question becomes whether the parties have obligated themselves to make a voluntary filing with CFIUS. In posts earlier this year, we raised the question of whether sales of U.S.-based automotive businesses to offshore buyers would trigger review under the Foreign Investment and National Security Act of 2007 (FINSA). Review under that statute could interpose a 30-day review period plus an additional 45-day period if an investigation is warranted. The descriptions of the deal, structured as the purchase and sale of intellectual property whose value lies in the marketing of the product and certain manufacturing rights, suggests that the parties have taken reasonable steps to minimize those factors that could lead to an adverse regulatory outcome.
It even is possible that GM, Tengzhong and their advisors are so confident of their structure that they will elect not to make the filing with CFIUS which, after all, is voluntary. The deal apparently has provisions that will save 3,000 U.S. jobs through 2011. It may be unlikely that a U.S. regulatory body will risk adding those workers to the already sizeable portion of the workforce that is unemployed. Although there could be regulatory risk, it may not be high for GM. CFIUS could, however, have an interest in fully analyzing the ownership and business relationships of Tengzhong and its 20% partner, Suolang Duoji, to determine whether there could be control by the PRC government.
GM has not yet filed the definitive agreement with the Securities and Exchange Commission. Under SEC rules it has until later the week to file the agreement if it is “material” agreement. Once filed, a review of the agreement should disclose whether the parties will make their voluntary CFIUS filing.
