Politics scotches foreign deals

Check Point Software Technologies, an Israeli company that makes popular fire wall and other Internet software, last year struck a deal to buy Sourcefire, a Columbia, Md., computer network security company, for $225 million.

But political considerations soon overcame the economic rationale for the deal as Congress stepped up its involvement in a series of proposed foreign takeovers. Congressional pressure forced a Middle Eastern company on March 9 to promise it would sell off U.S. port operations to an American owner.

“We basically on March 4th decided to withdraw from the CFIUS process, given the climate for international acquisitions,” said Michele Perry, Sourcefire’s chief marketing officer, referring to the Committee on Foreign Investment in the United States.

U.S. lawmakers are working on bills to increase further their role in the CFIUS review process, a move that they hope will strengthen national security, but that business groups say may scare off additional foreign investors.

CFIUS, a panel of executive branch-level officials led by the Treasury Department, is required by law to review foreign buyouts of U.S. companies with national security implications. Since 1998, it has been notified of 1,625 mergers and investigated 27. A president has only formally blocked one deal, though the panel has quietly shaped numerous transactions by raising concerns that might threaten final approval.

The process has become increasingly politicized, partly because of post-September 11 terrorism concerns, but especially since Chinese computer manufacturer Lenovo’s December 2004 purchase of IBM assets. Since the Lenovo deal, other proposed mergers have fallen apart or been radically restructured after intense criticism from Congress — notably, the proposed purchase of U.S. oil company Unocal by China’s CNOOC and DP World’s attempted purchase of a London company that ran operations at several U.S. ports.

CFIUS raised no objections to the Dubai deal, but congressional opposition forced the foreign company to promise it would transfer American port operations to a U.S. company. CNOOC, facing strong congressional opposition, bowed out before formally submitting to a CFIUS review.

Proposed mergers between French telecommunications giant Alcatel and Lucent Technologies, and Japanese conglomerate Toshiba and Westinghouse Electric Co. also have caught Congress’ eye.

“I have several grave concerns about the potential merger of French-owned Alcatel and American-owned Lucent Technologies,” Rep. Duncan Hunter, chairman of the House Armed Services Committee, wrote to President Bush April 28.

The California Republican said he was especially concerned with potential transfers of technology to countries such as Burma, China, Cuba and Iran, where Alcatel does business.

Mr. Hunter and other lawmakers want to give Congress a greater role monitoring foreign investments.

Sen. Richard C. Shelby, Alabama Republican and chairman of the Senate Banking, Housing and Urban Affairs Committee, and House Majority Whip Roy Blunt, Missouri Republican, are writing bills to increase congressional oversight of the CFIUS process. Mr. Shelby’s legislation passed the banking committee, and Mr. Blunt’s is scheduled to be introduced today.

“Whenever a foreign investment affects homeland security, it deserves greater scrutiny,” Mr. Blunt said last month. His bill, reflecting concern in the business community, is expected to limit congressional involvement and leave most of the existing CFIUS process intact.

Business groups fought congressional intervention.

“Legitimate national security concerns should be pursued vigorously, but introducing overt political considerations into the process would undermine investor confidence in U.S. markets and, consequently, reduce economic growth, threaten job creation and jeopardize U.S. efforts to open foreign markets,” Donald L. Evans, former commerce secretary and now chief executive of the Financial Services Forum, a business group, said in congressional testimony.

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