October 15, 2019

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New CFIUS developments: Is it China, data or both? Cogint and Genworth add new data points in understanding stricter CFIUS review process

U.S. technology company Cogint, Inc. (NASDAQ: COGT) announced the termination of its proposed business combination with BlueFocus International Limited after the Committee on Foreign Investment in the United States  indicated the committee’s unwillingness to approve the transaction. Although the confidentiality of the  CFIUS review process prohibits drawing definitive conclusions about the committee’s decision, its unwillingness to approve the transaction comports with its recent skepticism of transactions involving Chinese acquirers of companies possessing sensitive data of U.S. persons, including Social Security Numbers, health, and bank account information.

Cogint’s business model, which includes utilizing its “leading-edge, proprietary technology and…massive data repository” to “empower clients across markets and industries to better execute all aspects of their businesses,” appears to embody the committee’s concerns regarding foreign acquirers of U.S. technology companies with “massive data [repositories]” of sensitive information regarding U.S. persons. In announcing the termination of the BlueFocus transaction, Cogint appeared to indicate the identity of the buyer, as a Chinese-backed company, was responsible for the lack of approval. However, it is unclear whether the companies attempted to mitigate the committee’s concerns.

In what may  prove to be a major mitigation test case for future CFIUS filers, Genworth Financial, Inc. (NASDAQ: GNW) and China Oceanwide Holdings Group Co., Ltd. recently re-filed their joint voluntary notice with CFIUS following months of reluctance by the committee to approve the transaction. A securities filing by Genworth notes the companies are proposing the use of a U.S.-based third-party service provider to mitigate the risk to data security as part of the re-filed notice.

While Genworth and Oceanwide hope this revised plan involving the third-party service provider assuages the committee’s concerns, this case may provide guidance for future filers regarding whether data or China is CFIUS’s foremost concern. A plan involving a U.S.-based third-party service provider, if properly implemented, should address committee concerns regarding data. Thus, if CFIUS indicates its continued unwillingness to approve the transaction following this latest refiling, it is likely CFIUS is indicating one of the following: (1) it does not believe the plan adequately protects the data (i.e. that Oceanwide will still gain control of the information); (2) the committee’s concern is primarily the adverse interests, in this case Chinese parties, not data; (3) the committee is generally skeptical of the efficacy of  third-party service providers protecting data of this kind from the acquirer.

Without knowing the details of the plan proposed to CFIUS, it is impossible to draw conclusions regarding its viability. However, given the resources of the companies involved in the transaction, it is not unreasonable to assume the plan has been thoroughly vetted. If the committee’s primary concern is the acquiring party, not the data, even the best plan would not pass muster. However, continued reluctance to approve the transaction may simply indicate the committee is unable to agree third-party service providers can mitigate its data-related concerns on a go-forward basis. Nonetheless, the committee’s decision on the Genworth-Oceanwide re-filed application will provide valuable insight into the committee’s decision-making process for future filers.

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About this Author

David J. Lavan, Dinsmore, Corporate Litigation Attorney, SEC Registration

David is a partner in the Corporate Department who focuses his practice on all aspects of SEC registration, reporting and compliance. He routinely advises clients on public and private offerings of debt and equity, disclosure matters, corporate governance and accounting issues. As a former government bond broker, David provides clients with unique insights into the financial marketplace, counseling them on transactional and regulatory matters, as well as litigation. He represents both public and private companies, as well as independent board and committee members,...

Harvey Jay Cohen, Domestic Foreign Transactions Attorney, Dinsmore Shohl law

Harvey Cohen is a long-standing, accomplished corporate attorney, uniquely focused on helping clients win by practically, pro-actively and efficiently assisting with their domestic and foreign transactions. With years of studies and dealings abroad, Harvey applies his global experience to address cross-border strategies and complex issues in tandem with client product or service needs, specific industry situations, as well as "must haves" and "must avoids" before crafting any solution or agreement. 

Harvey is known for asking the hard, practical questions up front that cause ill-conceived deals to die early or that assist clients to forge alliances that are more likely to succeed and endure. His clients benefit from his extensive experience handling cross-border mergers and acquisitions, and with Dinsmore having more than 150 foreign clients, Harvey tailors his strategy to meet the unique needs of each client.

Patrick Schlembach, Attorney, Dinsmore

Patrick is a member of our Corporate Department.

Prior to joining the firm, he gained experience in transactional matters through both public and private employers, including the Office of the Upper Arlington City Attorney as a legal intern and as a summer associate at several firms. In these capacities, he has conducted case law, legislative and tax research, and has experience in corporate matters, including business formation and dissolution.