The Harvard Law School Corporate Governance Blog carries a recent post that contains a handy checklist of critical current issues that should be considered in advance of any acquisition of US businesses by non-US entities. The checklist has been prepared and posted by Wachtell, Lipton, Rosen & Katz, the top US law firm in the M&A space. The checklist would also be helpful to Indian acquirers that are increasingly on the prowl for US targets. It highlights the following key considerations (with a brief explanation on each of these):
– Political Considerations
– Transaction Structures
– Regulatory Hurdles
– CFIUS
– M&A Rules of the Road
– Tax Considerations
– Disclosure Obligations
– Market Players
– Financing
– Corporate Governance and Securities Law
– Antitrust Issues
Among these, an issue that has gained prominence in recent times relates to CFIUS, an acronym for the Committee on Foreign Investment in the United States, which scrutinizes sensitive cross-border transactions. Recent amendments to the Exon-Florio Act in the US grant wide powers to the US Government and CFIUS to block acquisitions by foreign players that are against US national interest. These legislative changes were triggered due to overtures in the past by the state-owned China National Offshore Oil Corporation (CNOOC) to take over Unocal, and by Dubai Ports World to acquire Peninsular and Oriental Steam Navigation Company, that were eventually warded off. The Wachtell checklist sets out some useful rules of thumb in dealing with CFIUS.
The post also contains a one-page memorandum titled M&A in 2008 that sets out founding partner Martin Lipton’s predictions for 2008. He notes:
“The wild card in 2008 will be the M&A activity of companies in the commodity rich countries and China and India and the investment activity of their sovereign wealth funds. During 2007 the SWFs made major investments in private equity funds and their management companies and in financial companies seeking additional capital. The activities of SWFs in 2008 could be a major factor in overall global M&A activity.”
There is indeed a clear recognition that India will present itself as a significant player in the US M&A market in 2008.
(For clarity, the reference in the quote to investment by the sovereign wealth funds of China and India appears somewhat inaccurate, since at present only China has set up a sovereign wealth fund in the form of the China Investment Corporation (CIC), while India is yet to set up one).
I feel that M&A of US entities is not going to be as much of a problem for Indian companies as it is going to be for, say, Chinese or Arab institutions. I feel that the “security problem” bogey may not be raised to justifiy against the acquitsion. However other factors remain pertinent.