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With business lobbyists already scrambling to head off reforms that would make foreign acquisitions of U.S. companies more difficult, the recently announced $14.1 billion merger between the French telecom company Alcatel and the U.S.-based Lucent Technologies Inc. looms as the next such deal to face the wrath of Congress. Foreign acquisitions are approved by the Treasury Department’s Committee on Foreign Investment in the United States (CFIUS). But the process by which such transactions are approved by the federal government has been under fire since the furor earlier this year over the planned acquisition of six U.S. ports by a Dubai company. Public and political pressure scuttled that deal, which was endorsed by the Bush administration. Now, Alcatel is trying to make sure it doesn’t suffer the same fate as Dubai Ports World. To that end, Lucent has been working pre-emptively with the U.S. government even before the merger officially comes under review, says Lucent spokesman Bill Price. Lucent is in discussions with government officials to place sensitive work the company does for the U.S. government, such as Bell Labs, into a separate subsidiary that would have an independent board composed of William Perry, former secretary of defense; James Woolsey, former director of the CIA; and Kenneth Minihan, former director of the National Security Agency. According to Price, the three nominations would have to be approved by the U.S. government. “They have appeared to identify, in advance, likely issues of concern,” says William Reinsch, a former trade official in the Clinton administration and the current president of the National Foreign Trade Council. “Whether that will satisfy CFIUS or the Hill is increasingly hard to predict. These things blow up unexpectedly.” That was certainly the case last year when Chevron Corp. successfully derailed a bid by China National Offshore Oil Corp. (CNOOC) for California oil giant Unocal Corp. But it was the Dubai Ports World fiasco that really put CFIUS in the cross hairs for many in Congress. When the state-owned business of the United Arab Emirates attempted to take over operations of six major U.S. ports from British company P&O, it became caught in a bitter Capitol Hill fight over homeland security and foreign ownership of key domestic enterprises. To fend off this fate, Lucent hired WilmerHale‘s Jamie Gorelick, Reginald Brown, and Stephen Preston to help with regulatory approval, and Alcatel has retained Skadden, Arps, Slate, Meagher & Flom; Patton Boggs; and the Duberstein Group. Unlike the controversial CNOOC deal, Dubai’s acquisition was formally approved by CFIUS. In the wake of the controversy, attempts to reform the 31-year-old committee gained steam. In March, legislation tightening review standards for foreign acquisitions sailed out of the Senate Banking Committee by a 20-0 vote and was approved by the full Senate. The House is expected to hold hearings on the bill later this month. CAUTION FLAG The business community is squarely against the proposed reforms and is pressing to block them. Johnson Madigan Peck Boland & Stewart is working with the U.S. Chamber of Commerce, the Organization for International Investment, and the Business Roundtable on the issue. And David Marchick, a partner with Covington & Burling and an alumnus of the team Chevron Corp. used last year in the Unocal deal, has made the media rounds and given testimony on the Hill advocating keeping CFIUS in its current form. He even has a book on the subject due out this May, though he declined to comment for this article. The business lobby was already successful in defanging some of the more troubling provisions in the Senate, including one that would have given Congress direct veto power over any foreign acquisition to which it objected. But business lobbyists say it’s been an uphill battle persuading Democrats to oppose the bill, as they are keen to look tough on national security in an election year. Equally frustrating for the business community is what it sees as the reluctance of the administration to loop Congress in early on such controversial deals, says Jonathan Winer of Alston & Bird. “A lot of people are royally irritated by the Bush administration for not treating Congress as an equal branch,” notes Winer, whose firm still represents DP World. Perhaps of most concern to the business community are provisions in the Senate bill, sponsored by committee Chairman Richard Shelby (R-Ala.), that would rank countries by threat levels to U.S. national security, a move Reinsch terms a “diplomatic disaster.” Coupled with that measure, another provision that would extend the period from 30 to 60 days for determining whether a transaction should be investigated lies at the heart of the business lobby’s concerns. Critics of the bill say the current 30-day window is more than sufficient for CFIUS to make such a determination. Current law stipulates that once CFIUS decides to conduct an investigation, it has 45 days to conduct its review. “That’s my biggest concern about the Senate bill . . . it’s death by a thousand cuts,” says one business lobbyist. “There are so many different, small things that end up making the system slower.” After the Banking Committee voted in March, the Business Roundtable sent out a letter to every congressional lawmaker expressing the hope that “Congress will not adopt proposals . . . that would place damaging restrictions on foreign investment.” The letter also argued that any attempt to extend the 45-day investigative period “would have the unintended, adverse consequence of discouraging legitimate foreign investment.” READY FOR REFORM Nonsense, says Patrick Mulloy, a former general counsel to the Senate Banking Committee and supporter of CFIUS reform. Mulloy, who was involved in drafting the 1988 Exon-Florio legislation that gave the president the ability to block any foreign direct investment that threatens national security, says that CFIUS reform will not dampen foreign investment in the United States. “Lobbyists for the investment bankers and lobbyists who serve investment bankers just want to continue doing business as usual,” says Mulloy, a member of the United States-China Economic and Security Review Commission. “They like the current system.” The Senate Banking Committee first began scrutinizing CFIUS in 2004, requesting a Government Accountability Office report examining the effectiveness of CFIUS in evaluating the national security implications of foreign acquisitions. A prime mover for the review was Sen. Evan Bayh (D-Ind.), a committee member who objected to CFIUS’ approval of a bid by a Chinese consortium to take over Magnequench, an Indiana-based company that makes more than 80 percent of the nation’s smart-bomb magnets. The GAO report, released in September of last year, was highly critical of CFIUS, finding that the committee was “reluctant to initiate investigations because of a perception that they would discourage foreign investment — a potential conflict with U.S. open investment policy.” Lobbyists say it’s too early to tell if Congress will vote to fundamentally reform CFIUS. Many in the business community say the longer the process takes, the better chance it has to stall, particularly as the anxiety caused by the Dubai ports controversy recedes in the public’s mind. “It’s [CFIUS reform] just fundamentally not a politically volatile issue that gets people outside the Beltway waiting on the edge of their seat,” says John Veroneau, former general counsel at the Office of the United States Trade Representative and a lobbyist at DLA Piper Rudnick Gray Cary.
Joe Crea can be contacted at [email protected].

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