French company's bid for Digimarc raises U.S. security concern

A leading U.S. maker of identification cards has raised national security concerns after French defense electronics maker Safran submitted a rival, unsolicited bid for Digimarc, another U.S. ID card company that has contracts with DHS. The Financial Times’s Stephanie Kirchgaessner writes that Robert LaPenta, chairman and chief executive of L-1 Identity Solutions, raised doubts about whether Safran could win U.S. government approval for its proposed $300 million all-cash bid for Digimarc, citing the French government’s 30 percent ownership interest in the company. Oregon-based Digimarc announced this week it had received an “indication of interest” from Safran and that its legal advisers believed the potential transaction could be superior to L-1’s $263 million stock and cash offer, which already has regulatory approval. Digimarc said it was entering discussions with Safran but that its board had not yet withdrawn or modified an earlier agreement with L-1. “Placing the credentialing of U.S. citizens in the hands of a foreign entity calls to question many potential dangers, including concerns of national security,” said LaPenta. “I am certain that the federal government … will not prefer to place U.S. citizens’ personal information … in the hands of a company outside our national borders.”

Safran’s offer is subject to review by CFIUS (the Committee on Foreign Investment), the inter-agency panel which investigates transactions for potential national security problems. Under new proposed regulations, the proposed deal would automatically face an intensive 45-day investigation following a more standard 30-day review because of the French government’s partial ownership of Safran. The proposed deal could be the first test of a new provision that would allow a senior Bush administration official on the CFIUS panel, such as Robert Kimmitt, deputy treasury secretary, to waive the 45-day review if the official deems the proposal does not constitute a potential threat. According to its Web site, Safran has operated in the United States for thirty years and its biggest customer is U.S. aerospace group Boeing. Safran technology is used by the U.S. air force, navy, and army.

In recent years, deals in which U.S. companies such as L-1 compete with foreign groups for U.S. assets considered sensitive have been prime targets on Capitol Hill. In 2005 Chevron helped to fuel a congressional backlash against CNOOC after the Chinese oil company made a rival, superior bid for Unocal, the California energy group. CNOOC eventually dropped its bid under the weight of congressional scrutiny and Chevron took over Unocal.