On Friday, December 2 – for just the third time since the creation of the Committee on Foreign Investment in the United States (“CFIUS”) – the President acted on a recommendation by CFIUS to block a foreign investment.

President Obama issued an Executive Order blocking the proposed acquisition of Aixtron, Inc., a California-based US subsidiary of the German parent company Aixtron SE.  The parent was the subject of a proposed acquisition by Grand Chip Investment GMBH.  Grand Chip is a German company, but it is ultimately controlled by GC Investment of Luxembourg and Fujian Grand Chip Investment Fund, a Chinese limited partnership.  According to Bloomberg, Aixtron, Inc. generates roughly 20% of the sales of Aixtron SE.

This is the first time the President has blocked a transaction where the US company was already owned by a foreign parent.  Consistent with conventional understanding of jurisdictional limitations, the order was careful to state that only the purchase of Aixtron’s US subsidiary (Aixtron, Inc.) is blocked, as opposed to the German parent company itself.  However, unless both parties are willing to proceed without the inclusion of Aixtron, Inc., the President’s action would kill the deal as a whole.

In 2012, at CFIUS’ recommendation, President Obama ordered Chinese-owned Ralls Corp. to divest certain windfarm assets located near a US defense facility. (For more information, see Steptoe’s advisory.) In 1990, also at CFIUS’ recommendation, then-President George H.W. Bush blocked a Chinese acquisition of defense/aerospace company MAMCO Manufacturing, Inc.  There have been many other instances – including several involving foreign investors from countries other than China – in which CFIUS scuttled deals by informing the parties that they would make a negative recommendation to the President.  In all but the Aixtron, Ralls, and MAMCO cases, that CFIUS action was sufficient to cause the parties to abandon the deal.  Only the three Chinese acquirers have forced action by the President.

China is, of course, the largest US trading partner that is not a close ally.  And CFIUS has cleared the vast majority of Chinese investments, including, for example, ChemChina’s $43 billion acquisition of Syngenta, which cleared earlier this year.  Last week’s order comes amid record amounts of Chinese investment in the United States, several adverse actions by CFIUS (albeit instances that did not lead to presidential blocking), and uncertainty over whether and how the incoming Trump administration might change CFIUS’ review processes and standards.

Steptoe attorneys have served on CFIUS as government officials and participated in hundreds of CFIUS reviews in government and in private practice.  We will continue to monitor developments on this important regulatory hurdle for inbound investments.