CFIUS Back On The Radar With IBM, Zoltek Deals

NEW YORK (The Deal) -- After a lull in high-profile deals that raise national security concerns, the Committee for Foreign Investment in U.S. appears to be back in the spotlight as China's Lenovo Group on Thursday agreed to buy the low-power server business of International Business Machines  (IBM) for $2.3 billion.

Lawyers who represent clients before CFIUS, the Treasury Department-led panel that reviews acquisitions of U.S. assets by foreign buyers for national security threats, said the transaction would almost certainly get a lengthy examination from CFIUS that would extend beyond the initial 30-day review phase and into a subsequent 45-day formal investigation.

CFIUS has not undertaken a high-profile investigation since September, when it cleared Shuanghui International Holdings' $7.1 billion takeover of Smithfield Foods.

Kaye Scholer partner Farhad Jalinous, who represents clients before CFIUS, said an increasing share of takeovers here by foreign buyers undergo the full 75-day CFIUS regime but that this one is particularly likely to because of the widespread use of IBM's x86 services in the U.S. government.

"The technology seems to be considered fairly low-level in the industry now, there is an ample number of competitors, but what [is] unknown is the extent these IBM servers are used in government infrastructure and the extent they are used in way that may create vulnerabilities for national security," he said.

IBM is being represented before CFIUS by O'Melveny & Myers partner Ted Kassinger.

Lenovo is well-known to CFIUS because of the company's 2005 purchase of IBM's personal computer business. CFIUS approved that deal with conditions over the objections of some U.S. lawmakers.

Lenovo did not reveal the obligations it was put under, but company officials said they did not have to compromise over the location of Lenovo facilities in sensitive research areas as some had predicted, nor were limits put on Lenovo's ability to sell PCs to U.S. agencies.

Regarding Lenovo's latest deal, Jalinous said that from the outside it is hard to assess the extent to which national security vulnerabilities might require mitigation measures to be imposed by the government. He said Lenovo is likely to gain some benefit from being a known quantity to CFIUS.

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