In case you missed it, during the summer our industry had a big moment in the flow of Executive Orders. Given the dense output of those orders, it’s understandable that the news didn’t make all caps at Huffington Post or the ticker at Fox News. However, it did make it into a press release on the Treasury Department’s website, which is a fascinating read in general. In short, the order retroactively prohibited the 2020 purchase and required divestiture within 120 days. It’s an extremely rare utilization of CFIUS powers, but within its charter
To quote the release: “Today, President Trump published an order prohibiting the acquisition by Suirui International Co., Limited, a Hong Kong company that is majority owned by Suirui Group Co., Ltd) a company organized under the laws of the People’s Republic of China, of Jupiter Systems, Inc., a Delaware corporation). The Committee on Foreign Investment in the United States reviewed and investigated this transaction pursuant to Section 721 of the Defense Production Act of 1950, as amended. CFIUS identified a national security risk arising from Suirui’s ownership of Jupiter relating to the potential compromise of Jupiter’s products used in military and critical infrastructure environments. To address this risk, the President’s order directs Suirui to divest all interests and rights in Jupiter and requires that Jupiter hold no interest or rights in any assets or operations of its Chinese subsidiaries acquired or created after the completion of the transaction.”
I’m sure many of you know all about CFIUS and may have had direct experience with it. For those who may not have, it’s been around since 1975 with the relevant Section 721 created in 1988 to address increasing concerns over foreign acquisitions of US businesses; it gave the President direct authority to review and block the transactions on national security grounds. The “amendment” that the press release refers to was an expansion of CFIUS powers by Congress during the first Trump administration. Among other things it allows CFIUS to review non-controlling acquisitions such as the Jupiter acquisition.
There is also link to the full text of the Executive Order which was also a very interesting read for me because it was so specifically about a company I know pretty well in an industry I know pretty well. Given the churn of media coverage, I find it very helpful to read primary sources such as Congressional bills and Executive Orders.
And like most things done by bureaucrats, the devil is in the details. According to reporting by my colleagues at SCN, the CFIUS investigation also confirmed that Suirui never had any access to Jupiter technology or IP and there was zero security exposure or mingling of technology or personnel. It was strictly a financial investment, more specifically to jump start the Pana 21:9 monitors. However, because of the 2018 amendment, even non-controlling financial-only relationships may be subject to oversight and divestiture, and CFIUS can assess that there is unacceptable future risk, as they did in this case. Ironically Jupiter’s processors are US-made.
Unsurprisingly, a 120 divestiture is a challenge. However, there is much about this specific situation that makes it less disruptive than it might otherwise be, because the companies were never intermingled in any way, and because of Jupiter’s longstanding government relationships which purportedly speed a normally glacial process. I urge you to read my colleague Wayne Cavardi’s excellent piece.
While this Executive Order is specific to Jupiter, it will surely affect the calculation of our industry’s financial and technical relationships with Chinese companies and other international entities.
