China National Chemical's Sfr44.6 billion ($43.8 billion) agreement to buy Swiss agrichemicals company Syngenta ( SYT) will raise a host of national security issues that U.S. regulators will have to grapple with, many of them novel ones that could be a harbinger of concerns that government officials face as buyers from China continue branching into areas beyond the energy, computing and telecommunications realms that have dominated the country's acquisition targets over the past decade.
ChemChina, as the buyer is generally known, is attempting to carry out China's largest ever overseas takeover. The deal comes on the heels of an unsuccessful attempt by Monsanto ( MON) to buy its Swiss-based rival in the agricultural chemicals and seeds business.
Acquisitions by Chinese buyers are among the most scrutinized by the Committee on Foreign Investment in the U.S., the Treasury Department-led panel charged with reviewing foreign buyers' acquisitions of U.S. assets for national security threats. A handful of acquisitions by Chinese buyers have been opposed or conditioned by Cfius but many more have been cleared without issue. Nevertheless, Chinese officials have complained that the process is unfairly skewed against acquirers from their country.
The acquisition of Syngenta, which has extensive operations in the U.S., will touch on a wide variety of areas of concern to national security: chemicals, proximity of Syngenta operations to U.S. military bases, access to GMO technology and food distribution in this country and whether Syngenta does any business with the U.S. military or other government branches.
In one sense, this transaction is reminiscent of Shuanghui International Holdings's 2013 takeover of Smithfield Foods, which Cfius approved with no mitigation conditions despite critics' warnings that the $7.1 billion deal could create U.S. food safety risks. However, the Syngenta deal would raise concerns in addition to food safety.
As a result it will necessitate a much more in-depth review and may result in Cfius needing more time that the 75 days it is granted under federal statute. To give itself more time the agency can ask the parties to delay formal notification of the merger to the panel, which would give Cfius a chance to start its review before the clock starts ticking. Also the panel could ask the merging companies to voluntarily withdraw and refile their notification papers if it looks like one 75-day cycle isn't long enough to complete a review.
All the Cfius experts contacted for this story predicted the deal would be subjected, at a minimum, to one full 75-day review. Under federal law mergers submitted for Cfius review are subject to an initial 30-day review and then a 45-day formal investigation if the panel's members believe the added scrutiny is warranted. At then end of the second phase of the review Cfius must either approve the deal, recommend that the President block it, or reach a settlement with the buyer that will allow the deal to go through with conditions aimed a resolving any national security concerns.