AMD Seeks Approval For Foundry Spin-Off from an Ever Changing CFIUS

Without CFIUS approval, AMD’s plans to spin off its fabrication assets will fall through. The deal could be blocked or reversed, even after it goes through, by the President under Exon-Florio. Therefore, the deal described in AMD’s 8-k filing specifically lists it as a condition for the transaction to go ahead.

The Committee on Foreign Investment in the US reports directly to the President on transactions where a foreign party is planning to acquire a US business in a way that could have national security implications.

It is chaired by the Secretary of the Treasury, and the other members are all from elsewhere in the administration: the Secretaries of State, Defense, Homeland Security and Commerce; the Attorney General; the Directors of the Offices of Management and Budget as well as Science and Technology Policy; the U.S. Trade Representative; the Assistants to the President for National Security Affairs and Economic Policy; and the Chairman of the Council of Economic Advisers.

Companies that are planning to enter those sorts of transactions (such as AMD) voluntarily file notice so that their plans, if approved, get a ‘safe harbour’, meaning that they won’t be told to change or unwind the transaction after the fact.

The Committee has 30 days to decide if they want to perform an extended investigation or approve the transaction. The extended investigation takes 45 days, followed by a recommendation to the President, who can block the deal under Section 721 of the Defense Production Act of 1950 (Exon-Florio). In reality, very few deals are investigated and even fewer are blocked. If CFIUS wants more than 30 days they will ask the Company to re-file instead of starting the extended review. And if a deal probably won’t make it through, the filer usually just gives up.

That informal relationship with filers; the fact that the process is highly confidential because of competition and national security requirements; high profile deals that drew a lot of public scrutiny; along with the whole operation taking place within the administration, have done little to improve public confidence in CFIUS.

CFIUS has risen in importance, and thusly the public’s scrutiny, not only because of the increasing importance of international trade, but the obvious increase in questions about national security we have lived with for the better part of the new millennium.

After the Bush White House and CFIUS approved the Dubai Ports World deal, public and legislator outcry went through the roof, eventually forcing DP World to sell its US ports to now-beleaguered AIG. An attempt to prevent a similar situation from occurring was made in the Foreign Investment & National Security Act of 2007. The biggest change is likely that legislators will now get annual reports and the ability to conduct a confidential review of any decisions made by CFIUS. Also, the Director of National Intelligence was made a non-voting member of the committee.

FINSA stopped short of the radical, but essentially logical, step of switching the Chair’s position from Treasury Secretary to Defense or Homeland Security. CFIUS is supposed to “ensure national security while promoting foreign investment…” Having the Treasury Secretary at the helm and Defense and Homeland Security Secretaries as members, implies that the focus is on keeping the investment coming in while also keeping an eye on national security.

There were also many additions clarifying the kinds of transactions that are covered and the ability to introduce conditions on a transaction instead of just accepting or rejecting it. We describe how these changes could affect AMD in the next article.