Global Mergers

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Global Mergers National Security. -- Global
Mergers New Realities Post-9/11 --
Presentation to the Virginia State Bar (June
16, 2006).

• Stuart S. Malawer, J.D. Ph.D.
• Distinguished Professor of Law
  International Trade
• George
  Mason University.

2
New Reality New Landscape.

• What is the new landscape for global mergers in
  the post-9/11 world?
• How is post-9/11 different from the
  post-Cold-War era (1990s)?
• --- Understanding the new contours of
  the post-9/11world
• is critical to assessing
  global mergers today ---
• --- Understanding the implication of
  the global financial crisis is a
• newer dimension, since 2008
  2009. ---

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From the Wall Street Journal (6.2.06) .
The merger boom that characterized the 1990s is
back, with total worldwide deal volume reaching a
whopping 2.8 trillion, in 2005, compared with
1.9 trillion in 2004. Indeed, global mergers
and acquisition volume continues to break
records, hitting 1.3 trillion to May 2006, a 40
increase over the same period last year.
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From the Financial Times (12.21.06) . Greater
than in Tech Boom.
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Mergers Worldwide . 2006 Beats 2000 Best Year
Ever.
Wall Street Journal (1.2.07).
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(No Transcript)
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Increasing role of private equity
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It continues in 2007 ..
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. The Setting .
Dubai Ports World National Security.
-- UAE - U.S. --
New York Times 3.18.06.
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National Security DPW.
Financial Times 3.28.06
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French U.S. Companies.
Washington Post 4.3.06.
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China EU Companies.
Wall Street Journal 5.22.06.
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India EU companies.
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Chinese Indian Foreign Mergers
Financial Times (10.31.06)
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Largest Chinese IPO Ever Largest in World Since
2000 until ICBC .
2006 -- 9.7b
Wall Street Journal 6.2.06.
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China -- Largest IPO Worldwide Ever (Oct. 2006).
Washington Post (10.20.06)
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Record Private Equity, Foreign Surplus, Corporate
Profits ..
Financial Times 9.27.06
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IPOs, Private Equity Mergers.
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Record China Trade Surplus (May 2006).
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Global Debate
Wall Street Journal 5.30.06.
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... India Investment National Security.
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. Resource Nationalism Deals. Resource
Nationalism part of Economic Nationalism.
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. Resource Nationalism
Financial Times 5.2.06.
Wall Street Journal 6.14.06.
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. Resource Nationalism
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. Resource Nationalism
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. Resource Nationalism
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. Protectionism Persists
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. Emphasis on Horizontal and Commodity-Related
Mergers.
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U.S. MERGERS (2000 May 10, 2006) Largest
YTD Since 2000.
650b.
476b.
Wall Street Journal 5.10.06.
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Greatest Global Mergers Since Jan. 2001.
Wall Street Journal 1.13.06.
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NYT 1.13.06
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Global Mergers 2001- 2006 1st Q -- Best Since
2001.
857 b
475 b
Wall Street Journal 4.3.06.
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Cross-Border Mergers (over 1b) 1987 2005.
WORLD INVESTMENT REPORT 2006 (UNCTAD)
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Cross-Border Mergers as Merger Values Worldwide
(1987 1999).
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World Investment Report 2000 (UNCTAD)
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Global Mergers as of FDI (1997 1999).
U.S. 80
World Investment Report 2000 (UNCTAD).
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Value of Global Mergers World FDI (1987 1999).
FDI 880b.
Global Mergers 710.b
World Investment Report 2000 (UNCTAD).
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New FDI in the U.S. 1980 2005.
2001--340b
2004 2005--- 86b
U.S. BUREAU OF ECONOMIC ANALYSIS (6.2.06).
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Global Stage The Deals.

• China Mobile Millicom Cellular (China- EU)
• Citic National Energy (China Canada)
• Mittal Arcelor (India EU).
• Arcelor Severstal (EU Russia).
• Toshiba Westinghouse (Japan U.K.)
• Gazprom Centrica (Russia U.K.)
• Gazprom Export Pipeline (EU- Russia).

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--- U.S. Stage The Deals ---

• DP World P O (UAE U.K. U.S. assets).
• CNOOC UNOCAL. (China U.S.).
• Emaar Properties Laing Homes (UAE-U.S.).
• Alcatel Lucent. (France U.S.).
• Lenovo IBM (China U.S.) (PC Business).
• Note -- EU U.S. Open Skies. (Foreign
  investment)

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--- Four Developments ---

• Four Developments in Global Trade Impacting
  Global Mergers
• Takeovers foreign investment are coming from
  developing countries (private firms, state-owned
  firms governments (Sovereign Wealth Funds).
• Rise of national security concerns.
• Increasing reaction against global integration
  (economic protectionism / economic patriotism).
• Growing resource nationalism in oil gas
  sectors.

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--- Focus on Foreign Firms from Developing
World ---

• Why the increase?
• Growth in world trade spurred by emergence of the
  WTO.
• Foreign companies have government ownership.
• Growth in foreign corporate profits.
• Growth in national surpluses (surplus nations).
• Increase in petrodollars.
• .
• Abundant global liquidity.
• Lower interest rates for corporate borrowers.
• Explosion in foreign capital markets (IPOs).
• Growth in private equity investments.
• Growth in national economic development.

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U.S. Response. New Debate Change the Law --

• Five Responses
• --- Demands for increase congressional oversight
  of foreign takeovers ---
• --- Domestic public pressure to strengthen
  existing legislation ---
• Domestic political pressure to restrict
  transnational deals impacting public sector
  services and defense industries.
• 
  
• Some corporate skirting of CFIUS Exon-Florio.
• Greater role for multinationals in public
  diplomacy public debate.
• Role of CEOs in presenting the global
  perspective.
• Politicians representing the local or regional
  interests.

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V. U.S. Law the Legislative Scene (2006-2007)
CFIUS / FINSA.

• While various pieces of legislation restrict
  foreign ownership in U.S. industries (aviation,
  defense, shipping, communications) the recent
  political debate has been over CFIUS and
  Exon-Florio Amendment.
• Other regulatory approvals for mergers are
  required (DOJ, FTC).
• CFIUS established in 1975 by Executive Order to
  monitor FDI into the U.S.
• Was amended by Exon-Florio in 1988. Required
  review of foreign takeovers on national security
  grounds.
• President could prohibit takeovers if credible
  evidence of a threat to national security.
• Procedure (90-Day Process)
• Submission is voluntary.
• 30-day initial review.
• If could have credible evidence then 45-day
  investigation.
• President has 15 days to allow, suspend or
  prohibit..
• National Security not defined, factors to
  consider.
• Withdrawing and refiling notices restart the
  clock.

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• Various amendments in 1992 requiring greater
  reporting to congress.
• Report to Congress if President makes any
  decision. (Byrd Amend.)
• Report every four years whether there is credible
  evidence.
• Actual Practice 2 takeovers prohibited (as of
  2005).
• GAO Study (2005) for 1997 - 2004
• 470 Notifications.
• 8 Investigations.
• 2 Presidential determinations (as to
  telecommunications).

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Implementation of Exon-Florio Could.
(GAO-06-135T, Oct. 6, 2005).
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• Legislative proposals in 2006 Greater
  Notification Review.
• Shelby-Sarbanes Senate Bill.
• Congressional notification when review is
  initiated.
• Ranking of countries based on compliance with
  weapons-control deals.
• 45-day investigation required if have a foreign
  government-controlled entity.
• Congressional veto rejected.
• Blunt House Bill.
• Congressional notification upon completion of
  review.
• Hunter critical infrastructure prohibition.
• Tracking mitigation agreements.
• Role for Homeland Security and Director of
  National Intelligence.
• House bill is less stringent than the Senate bill
  and seems to recognize more that economic
  security entails encouraging foreign investment.
• Update -- New Legislation 2007 "The Foreign
  Investment National Security Act."
• The President signed new legislation in August
  2007 that provides for revamping of CFIUS a
  full 90-day investigations of takeovers by
  government-owned companies. Became effective
  October 24, 2007.

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-- Summary Newer Global Landscape --

• Domestic Political Change
  Global Mergers.
• Since 9/11 the political aspects of global trade
  have changed.
• The issue of global mergers needs to be
  understood in this newer landscape.
• Specifically, weve had a change in the political
  dynamics within the U.S. and within other
  countries.
• The role of national security and reaction
  against globalization are growing pieces of this
  new post-9/11 era.

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• International
  Political Change.
• The U.S. is no longer the superpower of the
  1990s where unilateral actions were almost
  always the first option in foreign affairs and
  trade relations.
• In trade relations the world is more multipolar
  than previously with the rise of Brazil, Russia,
  India China (BRICs), the reemergence of Japan
  and economic growth in other countries such as
  Korea.
• New sources of foreign wealth from global trade
  and petrodollars (Middle East, Russia, Venezuela
  and elsewhere) influence global trade.

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• --- Global Trade Global
  Mergers Post-9/11 ---
• Greater protectionism and concern for national
  security in the U.S. EU are having a
  significant impact on trade relations review
  of global mergers.
• Russia is considering imposing controls on
  foreign investors in strategic industries.
• South Korea is reassessing its treatment of
  foreign private equity in industry
  reorganizations.
• India concerned about Chinese investment
  national security.
• Greater role of foreign corporations with
  government ownership is of growing concern in
  assessing global mergers.
• Resource nationalism in Latin America
  (Venezuela, Bolivia Ecuador) and elsewhere has
  an unclear impact on global mergers.
• The greater global rivalry for oil and energy
  among numerous countries is having a growing
  impact on global mergers.

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• Final Thoughts --
• The transformational power of trade in post-9/11
  (including promoting global mergers) to bring
  political and cultural change is increasingly
  challenged by growing concern for national
  security.
• Our policy challenge is to continue promoting the
  political and economic benefits of global trade
  and mergers within this new dynamic.
• Final Question -- In the coming years will the
  newer national security goals of the United
  States outweigh other national goals that promote
  economic development and democracy worldwide?
• This is an open question. The future landscape
  of the trading system depends on the answer. At
  this point it is unclear .

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E-Mail StuartMalawer_at_msn.com
www.InternationalTradeRelations.com
www.Global-Trade-Law.com
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