By executive order on March 6, 2020, the Trump administration prohibited Beijing Shiji Information Technology Co., Ltd. (and together with its wholly-owned subsidiary Shiji (Hong Kong) Ltd., “Beijing Shiji”), a Chinese public company (and) from acquiring any ownership in StayNTouch, Inc. (“StayNTouch”) or any of StayNTouch assets. Beijing Shiji is a producer of software solutions for the hotel, food service, retail, and entertainment industries. StayNTouch is a U.S. developer of hotel property management software as a service products. Beijing Shiji completed a transaction to acquire StayNTouch in September 2018 but had been invested in the company since 2016.
The order suggested that there is credible evidence that the Purchaser “might take action that threatens to impair the national security of the United States.” While the order does not specify the threat but it appears to indicate a concern about Chinese access to StayNTouch’s hotel guest data. A determination of credible threat is a prerequisite for taking action under the Committee on Foreign Investment in the United States (“CFIUS”) enabling statute, Section 721 of the Defense Production Act as amended by the Foreign Investment Risk Modernization Act of 2018 (“FIRRMA”).
On the basis of such finding, Beijing Shiji is ordered to, within 120 days of the date of the order, among other things:
(a) divest all interests in (i) StayNTouch; (ii) any StayNTouch assets, intellectual property, data (including customer data managed and stored by StayNTouch), personnel, and customer contract; and (iii) any operations developed, held, or controlled, whether directly or indirectly, by StayNTouch;
(b) refrain from accessing, and shall ensure that any of its subsidiaries or affiliates refrain from accessing, hotel guest data through StayNTouch immediately from the date of the order;
(c) ensure that controls are in place to prevent any such data access until such time as the divestment has been completed and verified to the satisfaction of CFIUS; and
(d) certify in writing to CFIUS that divestment has been effected in accordance with the order.
This presidential order follows a review by CFIUS and its recommendation to President Trump that such completed takeover should be reversed, on national security grounds.
This decision is the latest example of the Trump administration’s more critical view of Chinese companies acquiring U.S. companies and assets as the administration and lawmakers from both parties have grown increasingly concerned about national security risks posed by China’s investments in the U.S. Other recent examples include the ordering of Beijing Kunlun Tech to divest its interest in the dating app Grindr and iCarbonX (Chinese company backed by Tencent) to sell its stake in PatientLikeMe, a U.S. health tech start-up. In January 2018, Ant Financial (an affiliate of Alibaba) called off plans to acquire MoneyGram, a money transfer company, due to concerns over U.S. regulatory review.
Chinse investment in the U.S. has fallen from $53 billion in 2016 to $3.2 billion in 2019.1 In addition to greater scrutiny from the U.S. government, the U.S.-China trade war and tighter scrutiny in China on outbound investments (including foreign exchange control) also contributed to the slow down.
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