NEW ORLEANS - Merger watchdogs in Washington risk punishing the people they’re trying to protect. Rules on cross-border acquisitions have been getting tougher – notably with changes to the Committee on Foreign Investment in the United States that took effect in February. That has got many of the deal advisers who attended this week’s Tulane Corporate Law Institute summit in New Orleans walking on eggshells. As a global pandemic threatens to wreak havoc on businesses, it comes at a particularly bad time.

President Donald Trump’s administration has pledged to put U.S. business first, and the new CFIUS rules attest to that. The watchdog, headed by Treasury Secretary Steven Mnuchin, can now vet purchase of stakes as well as full companies. Inflating CFIUS’s powers introduces the idea that deal approval requires political goodwill. At a Tulane panel on protectionism, one M&A lawyer joked that the way to get a deal through was to hire “Donald Trump’s favorite lawyer.”

There’s still political support for some deals, but that too just muddies the water about what’s acceptable. Last month U.S. Attorney General William Barr suggested that the U.S. government would consider taking a controlling stake in Finland's Nokia  or Sweden's Ericsson. The idea is to counter China-based Huawei Technologies’ dominance in next-generation 5G wireless technology.

The trouble is that as markets slide amid fears of coronavirus and companies from General Electric to Apple warn revenue will disappoint this year, two kinds of deals become more attractive: those that create scope for cost cuts, and those that give greater control over the supply chain. In many cases, those are cross-border mergers. Already in 2019, the $1.2 trillion value of announced international transactions had fallen to a six-year low, according to Refinitiv data.

The supply chain issues are most worrying. Last month Republicans raised concerns that more than 80% of the active pharmaceutical ingredients used in drugs were manufactured overseas in 2018, for example. Doing deals that insulate against those risks in the future becomes less likely if merger protectionism beds down in the United States, and its trade partners retaliate.

The lawyers and advisers who attend Tulane naturally gripe against anything that means less corporate activity. But in this case they have a point. If coronavirus means companies need all the help they can get, “America First” policies could prove to be anything but.

 

CONTEXT NEWS

- New rules governing foreign investment into the United States came into effect on Feb. 13. They included giving the Committee on Foreign Investment in the United States new jurisdiction over certain non-controlling investments into certain U.S. businesses involved in technology, infrastructure, or sensitive personal data.

- CFIUS is an interagency body headed by the U.S. Department of the Treasury that weighs the effect of transactions on national security. It can also refer transactions directly to the president for a decision.

- The 32nd Tulane Corporate Law Institute takes place in New Orleans on March 5-6.

- For previous columns by the author, Reuters customers can click on SILVA/

 

(Editing by John Foley and Leigh Anderson) ((Lauren.SilvaLaughlin@thomsonreuters.com))