Trend: CFIUS new assertivenessRestrictions imposed on Nokia-Siemens deal

Published 8 January 2007

One result of last year’s storm over the DPW deal is the greater scrutiny now being imposed on deals involving sensitive U.S. technologies and companies; CFIUS is showing growing assertiveness in scrutinizing and imposing restrictions on deals involving communication infrastructure companies

The reverbarations — perhaps “aftershocks” is better here — from last February’s firestorm over the sale of management operations in U.S. sea ports to a Dubai-based company continue. Congress has been considering legislation to tighten control over non-U.S. companies buying critical infrastructure assets and other sensitive property, and the Bush administration appears to be moving national security considerations higher on the list of items to be checked before any such deal is approved (this is what administration supporters say; critics argue that there is not much more here then exploiting the issue for political gains).

One such example is the recent national security review by U.S. authorities of the proposed $21 billion joint venture agreement between Nokia and Siemens, a review which forced the European telecom equipment makers to sign what is called a “mitigations agreement” which imposes considerable restrictions on the new company. The Financial Times notes that the decision to probe this particular joint venture indicates a new trend: “Agencies involved in the national security review process — especially the departments of defence, homeland security and justice — are intensifying their scrutiny of companies that make components for mobile and fixed-line networks globally.”

Specifically, the interagency Committee on Foreign Investment in the United States (CFIUS) had imposed security requirements on the new venture, including procedures which dictate whether foreigners could work on U.S. equipment and software. The restrictions are not unlike those the U.S. government imposed on the merger of Alcatel and Lucent (Lucent operates the Bell Labs, in which highly sensitive work is being done for the U.S. intelligence community).

The mitigations agreement governing the Nokia-Siemens deal may well set a precedent for an industry facing major consolidation. Pay special attention to Nortel Networks, as the company does sensitive work for the U.S. government, and any deal involving Nortell will be especially scrutinized.

The Nokia-Siemens joint venture will create the third largest supplier of equipment to telecoms companies, after Alcatel-Lucent and Ericsson.

Not everyone is happy with CFIUS more assertive posture. “The process has become a tool for CFIUS to impose security requirements on foreign companies, while the government lacks the legal authority to impose them on U.S. companies,” says David Marchick of Covington & Burling. “They have a hook, and they use it.”

-read more in Stephanie Kirchgaessnerin’s FT report (sub. req.)