Managing Cross-Border Issues in a Turbulent Market

Managing Cross-Border Issues in a Turbulent Market Tara K. Giunta Hart Holden Paul Hastings Janofsky & Walker LLP March 2009

Agenda • Market environment • National security issues • Requirements that can affect your deal • Antitrust concerns

Market is Lousy • Next slide….

National Security Issues • Exon-Florio - Section 5021 of the Omnibus Trade and Competitiveness Act of 1988 (which amended Section 721 of the Defense Production Act of 1950) • President can block a foreign acquisition of a U.S. corporation only if: 1. credible evidence that the foreign entity exercising control might take action that threatens national security, and • the provisions of law, other than the International Emergency Economic Powers Act, do not provide adequate and appropriate authority to protect the national security. • Committee for Foreign Investment in the United States (“CFIUS”) • Historically, only larger acquisitions in “sensitive” industries such as defense and high technology would trip full CFIUS review . . . not necessarily so today!

The Post-Dubai Ports World • Weaknesses in CFIUS system identified through Congressional hearings • Lack of coordination evaluating security risks • Overly narrow definition of national security • Lack of clear and consistent procedures for monitoring withdrawn transactions • Lack of adequate reporting to Congress • Significant Increase in Oversight • Higher number of companies withdrawing from CFIUS review (either terminating or restructuring per CFIUS concerns) • Higher number of transactions approved with conditions • Now notifying Congressional committees when complete action on each transaction and quarterly briefings

CFIUS Amended by FINSA • Foreign Investment and National Security Act of 2007 (FINSA) • Regulations became effective December 22, 2008 • Expands scope of foreign investment transactions subject to national security reviews • Makes no changes to the existing 30 day review period and 45-day investigation process, but formalizes existing procedures • Increases Congressional oversight of CFIUS proceeding

FINSA Regulations • Detailed biographical information on senior managers and directors of the foreign party • Permits U.S. security officials to conduct background checks • Additional reporting requirements imposed on CFIUS • Information used to report to Congress • While some or all of the contents of these reports can be classified, unclassified versions will be made public • While voluntary notices are confidential and exempt from disclosure under the Freedom of Information Act, they remain subject to disclosure to either House of Congress or to any duly authorized committee or subcommittee of the Congress

Traditional Considerations for CFIUS • The President may consider the following in evaluating the proposed transaction for national security implications: • domestic production needed for projected national defense requirements; • the capability and capacity of domestic industries to meet national defense requirements, including the availability of human resources, products, technology, materials, and other supplies and services; • the control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the U.S. to meet the requirements of national security; • the potential effects of the transaction on the sales of military goods, equipment, or technology to a country that supports terrorism or proliferates missile technology or chemical and biological weapons; and • the potential effects of the transaction on U.S. technological leadership in areas affecting U.S. national security.

Types of Conditions Typically Imposed • Board of Directors • Cooperation with Law Enforcement • Customer Information • Monitoring of Network • Future Business Relationships • Location of Facilities (locus of “control” facilities) • Relationship with Investors • Compliance • Appointment of Contact for Law Enforcement Purposes

Of Particular Concern • Citizenship of key Board committees and officers • Cooperation with law enforcement • Customer records • Monitoring of Network • Future Business Relationships • Location of Facilities • Relationship with Investors • Compliance • Appointment of Contact for Law Enforcement Purposes

Realities • Need to take CFIUS review into consideration even with the most benign transaction if foreign involvement • If possible, notify CFIUS in advance that will receive filing, particularly if is a significant or time sensitive transaction • If/when a security agreement is entered into, will be heavily negotiated • CFIUS agencies are now actively monitoring transactions they have reviewed for compliance with national security agreements, letters of assurance and/or representations made by the parties • No significant change under Obama Administration • Given market realities, believe CFIUS agencies will not want to adversely impact deal • However, expect usual scrutiny and protections with regard to transaction involving defense, public infrastructure, homeland security, telecom or high tech

Antitrust Concerns Deals Involving the US – The Bad News • DOJ has been criticized for lax merger enforcement under the Bush Administration, this is expected to change under the Obama administration • The FTC has already been quite aggressive on M&A enforcement for some time, and this is expected to continue if not increase going forward • Examples of this increased enforcement posture include: • The use of more administrative litigation in FTC cases • Revised Merger Guidelines dealing with innovation markets and potential competition • Increased use of other unilateral effects theories (e.g., “closest two competitors”)

Antitrust Concerns Deals Involving the US – The Good News • The more aggressive US antitrust authorities do not have the last say, that is reserved for the federal courts • Current economic conditions may factor hugely into the outcome of certain merger matters

Antitrust Concerns Deals Involving the EU • There has been a great deal of convergence in terms of how deals are analyzed in the EU (vis-à-vis the US) • Of late, this has particularly concerned the issue of acceptable remedies • There remain significant differences, particularly in filing requirements and procedure

Antitrust Concerns Deals Involving China • China’s new anti-monopoly law has very recently taken effect – it is in principle quite similar to that of the US, but actual workings in practice remain largely yet to be seen • Many viewed the recent Coca-Cola Huiyuan Juice transaction as an important test case, but the deal was unfortunately rejected by China on apparently nationalistic grounds

Antitrust Concerns Cooperation Between Antitrust and Other Regulatory Counsel (e.g. CFIUS) is Critical • The various filings address different things and for different reasons • The various filings call for information that often involves terms of art • The information contained in the various filings must be consistent (if not supportive)

Antitrust Concerns Cooperation Between US Antitrust Counsel and Foreign Competition Counsel is Critical • There are well over 100 jurisdictions that have competition enforcement regimes and require M&A filings • Cooperation amongst the various jurisdictions has increased significantly in recent years • The various filings often call for different information at different stages of the review • The information supplied to the various jurisdictions must be consistent (if not supportive)

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Managing Cross-Border Issues in a Turbulent Market