From fretting takeovers to vetting CFIUS: finding a balance in U.S. policy regarding foreign acquisitions of domestic assets

Vanderbilt Journal of Transnational Law, Oct, 2006 by Gaurav Sud

In a development similar to what occurred in the CNOOC/Unocal transaction just a few months prior, on March 9, 2006, Dubai Ports World bowed to "extreme public and political pressure" and gave up its management stake in the U.S. seaports. (39) Thus, the management of Dubai Ports World made a decision like that made by CNOOC management that the backlash that had arisen was too strong to overcome. (40) This situation gave renewed relevance to the CFIUS question and resulted in numerous pledges to reform the takeover review process in the United States. (41)

It is clear that this is an issue that will not subside, but rather will swell in the coming years, as the effects of globalization continue to spread and cause an increasing number of economies around the world to seek overseas expansion in a variety of vital industry sectors. (42) Regarding China in particular, the comments of William Reinsch, president of the National Foreign Trade Council and a member of the congressionally appointed China Economic Security and Review Commission, will likely prove prescient: "China is piling up dollars, it's only a matter of time before they start going into the acquisition of U.S. companies. People shouldn't be surprised." (43)

This Note ultimately aims to suggest a solution for like scenarios, which will inevitably arise in the near economic future, given that heavy-growth economies, such as those in China, India, and the United Arab Emirates, will have both the resources and the need to expand beyond their borders. Accordingly, Part II of this Note examines the process of completing a merger pursuant to the current body of U.S. corporate law and compares this statutory framework to that which presently exists in several foreign jurisdictions. Part III examines the role of CFIUS and the recent movement to expand the scope of this agency, thereby proposing dramatic changes to the U.S. merger statutory framework described in Part II. Lastly, Part IV offers a solution to this scenario, with the hope that its implementation will allow for a smoother, less controversial process when the next foreign entity attempts to acquire a U.S. conglomerate.

II. COMPARATIVE LOOK AT THE STATUTORY FRAMEWORK FOR MERGERS AND ACQUISITIONS TRANSACTIONS IN THE UNITED STATES AND ABROAD

A. Statutory Framework of Delaware General Corporate Law Concerning Mergers

Corporate law in the United States is based primarily on state law regimes, with Delaware leading the way; more than half of the largest corporations in the United States, including Unocal Corporation, are incorporated in Delaware. (44) Since other states have generally followed Delaware's lead on many fundamentals of corporate law, including merger law, it is sensible to examine the relevant Delaware statutory language as a means of extrapolating the overriding norms of U.S. merger law. (45) Of course, this statutory structure only applies to entities incorporated under the laws of Delaware, which may not be the case in cross-border transactions. However, using the Delaware statute as a base nonetheless is insightful because it reflects the fundamental principles of U.S. merger law.