AMD’s CFIUS Approval Hinges on Many Factors

Technically, CFIUS filing is voluntary, but without an approval, the President can unwind the transaction after the fact. Therefore, CFIUS approval is a condition of AMD’s plans to create The Foundry Company. According to the recently released Guidance from CFIUS incorporating the changes brought about by FINSA 2007 (see previous article), AMD’s Asset Lite transactions are certainly the kind that should be reviewed.

Section III.B of the new CFIUS Guidance lists the kinds of factors CFIUS looks at to decide if a transaction poses a national security risk. Examples of the kinds of transactions they review and how, based on who is being bought and who is doing the buying, make up Section IV.A and B respectively.

AMD’s plans qualify as a ‘covered transaction’ for a number of reasons. They aren’t just part of the competitive fabric that makes up “US international technological leadership in areas affecting US national security.” They also make CPU’s that go into all kinds of military equipment, from ruggedized servers to the Stryker supercomputer they were commissioned to build, housing 2304 Opteron processors.

Finally, the foreign investors are wholly owned by the government of Abu Dhabi, and part of the deal sees Mubadala, one Abu Dhabi firm, increasing its ownership in AMD to well over the 10% threshold CFIUS uses to establish if an investor has a controlling interest. Government controlled investment companies, often called sovereign wealth funds or just SWFs, draw CFIUS interest on their own, even if the target company has nothing to do with infrastructure, technology or so on. Section IV.B.2 is wholly devoted to this aspect of a transaction.

Just because AMD’s plans should get careful attention from CFIUS, doesn’t automatically mean that they will be viewed negatively. To quote IV.B.2 “although foreign government control is clearly a national security factor to be considered, the fact that a transaction is a foreign government-controlled transaction does not, in itself, mean that it poses national security risk.”

Since, for obvious reasons, it is impossible to know exactly how much of what AMD supplies the Pentagon, it is hard to comment precisely on what kind of threat their falling in with the UAE’s government could represent. It seems they supply military contractors with the same chips they supply everyone else, which would nullify the espionage concern, but if they have any classified agreements, by definition, the public doesn’t know about them. We can still compare this case to other transactions CFIUS looked at, and see what kind of chances AMD stands.

Even if there is some hush-hush stuff going on at AMD, then there are already plenty of security measures in place. Large companies that do business with the military are pretty good at compartmentalizing sensitive projects. Keeping clients with security concerns happy means having as few people as possible know anything important, and making sure those people are all appropriately cleared. Even senior management doesn’t need to see many details since they are focused on the financial aspects and operate with a broader view of a company’s operations.

That said, 3Com’s attempt to merge with Huawei, a Chinese electronics firm, was blocked earlier this year. The decision is thought to have been driven by alleged ties between Huawei and the Chinese military on the buying end and 3Com’s manufacture of tech products used by the US military on the selling end. And still fresh in many people’s memory is the outcry after DP World, a company from Dubai, another United Arab Emirate that borders Abu Dhabi, bought a British company that owned several US ports.

Not at all, many major deals from the UAE, often pertaining to US investment companies, have gone through since DP World. And with most of the world’s semiconductor manufacturing capacity outside of the US, both geographically and in terms of corporate parentage, it’s obvious that CFIUS has to keep an open mind when looking at technology industries.

The next article looks at where AMD may be able to make a better case than the aforementioned scuttled deals as they try to move ahead with their spin-off plans.