Third-party interventions in FIC proceedings: Unforeseen risks and hidden opportunities

These days, governmental bodies often have a say in whether foreign investments can proceed, particularly when national security or public order might be at stake. This is where Foreign Investment Control (FIC) comes in. While the influence of third parties in merger control proceedings is well-known, the potential impact of third-party involvement in FIC proceedings still goes underestimated. This post looks at the often-overlooked role of third parties in foreign investment screenings and highlights the potential risks and hidden opportunities.

It is no secret that merger control regulators routinely seek input from stakeholders when assessing difficult transactions. This is a widely accepted practice that allows regulators to gain a more comprehensive understanding of the potential impact of an envisaged deal. However, the significance of third-party voices in FIC reviews sometime still appears to be a secret.

While FIC regulators might rarely not always solicit external opinions actively, they are often receptive to information provided by external parties when it comes to concerns regarding public order and security. Complaints lodged by customers can be particularly influential in these instances. A disgruntled customer base raising security concerns about a foreign investment can pose a significant hurdle for a proposed deal.

The challenge of visibility

For third parties to effectively utilize their voice in FIC proceedings, they first need to be aware of ongoing transactions. Unlike in merger control, many jurisdictions are not transparent about ongoing FIC reviews. This lack of transparency can make it difficult for those with concerns to even know where to bring them forward.

Proactive strategies for third parties

Despite the limited visibility, there are still ways for third parties to become active. If a company learns of a potential transaction and would like to raise concerns related to public order or security, it is advisable (subject to national particularities) to reach out to the relevant national regulator proactively and to check whether they might be reviewing the deal. By clearly articulating concerns and providing supportive evidence, third parties can have a significant impact on the outcome of the review.

Flip side: Anticipating stakeholder concerns

For those on the receiving end of a FIC review, it is crucial to consider not only the potential concerns of governments but also those of potential stakeholders, such as customers and suppliers. These third parties might raise genuine concerns, or they might use this opportunity to leverage their position for commercial gain.

For instance, a major supplier could decide to express concerns about a foreign takeover in an attempt to negotiate more favorable terms with the acquiring company. Identifying such potential scenarios early, e.g., by thinking about customers active in critical industries even if they source only commodity products from the parties, allows for proactive engagement, potentially minimizing delays and securing a smoother approval process.

What to keep in mind

While the influence of third parties in FIC proceedings might be less conspicuous than in merger control, it is definitely not negligible. By understanding the potential impact of both genuine concerns and opportunistic maneuvering, third parties and the transaction parties can navigate the intricacies of the process more effectively.

For regulators, fostering greater transparency about ongoing reviews could allow all stakeholders to participate in a more informed and constructive manner, but would of course have implications on confidentiality, which are not always welcome. One should in any case expect third party interventions to play an increasingly important role in FIC proceedings in the years to come.

Photo by Vlada Karpovich