Cfius, Powerful and Unseen, Is a Gatekeeper on Major Deals

Qualcomm, one of the world’s largest chip makers, has spent the last four months fending off a hostile takeover from Broadcom, a Singaporean rival. The fate of the proposed takeover now rests with a little-known committee of top White House administration officials who meet in secret, wielding power to kill the biggest multibillion-dollar global deals.

The Committee on Foreign Investment in the United States, or Cfius (pronounced Sif-e-us), investigates mergers that could result in control of an American business by a foreign individual or company, judging whether the deal could jeopardize the national security of the United States. On Sunday, the Treasury Department, which oversees Cfius, said the committee would begin looking into the deal for Qualcomm, the San Diego company whose chips power phones and devices around the world.

It appears to be the first time the committee has intervened on a deal before it has been finalized, a signal that Cfius may play a more prominent role in the Trump administration’s America First policymaking.

Cfius “is the No. 1 weapon in the Trump administration’s protectionist arsenal, the ultimate regulatory bazooka,” said Hernan Cristerna, co-head of global mergers and acquisitions at JPMorgan Chase.

The committee is made up of members of the State, Defense, Justice, Commerce, Energy and Homeland Security departments, and is led by the treasury secretary. These days, that means Steven Mnuchin.

When Cfius reviews a possible deal, the committee does not publicly disclose any information provided to it — nor does it even acknowledge that a party to a merger has submitted a deal to review. It also has the authority to intervene and review pending or completed transactions, without being asked by any of the companies involved, if members of the committee think a deal that could raise national security concerns.

The committee’s findings, which are not publicly announced, are sent to the president, who may suspend or prohibit the deal.

But cases do not often get that far: The rejection of a deal by the committee is usually enough to kill a deal.

President Gerald R. Ford signed an executive order creating Cfius in 1975, mainly as a vehicle to study foreign investment. But its responsibilities expanded after a crisis in the 1980s involving — like Qualcomm — an American chip maker: Fairchild Semiconductor, one of the pioneers of Silicon Valley, wanted to sell itself to Fujitsu, a Japanese company.

Japanese companies were at the forefront of the electronics industry then, and Reagan administration officials mustered intense pressure to force Fairchild to cancel the deal (it later struck a deal with National Semiconductor). But the threat of more Japanese investment led Congress to pass the Exon-Florio Amendment in 1988, granting the president the ability to stop a foreign acquisition if there is “credible evidence” that a “foreign interest exercising control might take action that threatens to impair the national security.”

Cfius was charged with reviewing mergers for potential threats.

Cfius reviews deals across a variety of industries and companies from dozens of different countries. It has often set its sites on deals involving Chinese companies, as the country’s economic might has grown in recent years. From 2013 to 2015, the latest years for which the committee has made data public, about 20 percent of the deals that Cfius reviewed involved investors from China.

Among the notable recent reviews were:

The Broadcom-Qualcomm deal does not involve China-based companies. But there has been speculation that the acquisition could undermine the ability of the United States to compete with China in the race for telecommunications supremacy.

“Qualcomm’s work is too important to our national security to let it fall into the hands of a foreign company — and in a hostile takeover no less,” said Senator Tom Cotton, Republican of Arkansas. “I would like to see Cfius more active especially regarding China and regarding critical industries.”

A bipartisan group in Congress has proposed legislation that would greatly expand the number of deals reviewed by Cfius. In November, Senator John Cornyn, Republican of Texas, and Senator Dianne Feinstein, Democrat of California, introduced a bill that could add thousands of companies with foreign ties to the list of those reviewed each year by Cfius and provide more funding to deal with that increase. A similar House bill was also introduced by Representative Robert Pittenger, Republican of North Carolina. The measure would expand Cfius’s jurisdiction to include joint ventures, sales of minority stakes and real estate deals for property near military bases and other sensitive facilities.

“By exploiting gaps in the existing Cfius review process,” said Mr. Cornyn, “potential adversaries, such as China, have been effectively degrading our country’s military technological edge by acquiring, and otherwise investing in U.S. companies.”

The proposal has drawn objections from some businesses. IBM said the changes would limit “the ability of American firms to do business abroad while empowering foreign competitors to capture global markets.”

Content originally published on by KEVIN GRANVILLE