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The US government conducted a national security review of the proposed $21bn joint venture agreement between Nokia and Siemens, and forced the European telecoms equipment makers to sign a “mitigations agreement” that imposed restrictions on the new company.
While the US has hitherto shown keen interest in foreign takeovers of US telecoms carriers, the decision to probe the joint venture indicates a new trend.
Agencies involved in the national security review process – especially the departments of defence, homeland security and justice – are intensifying their scrutiny of companies that make components for mobile and fixed-line networks globally.
People familiar with the classified national security review by the Committee on Foreign Investment in the US – Cfius – the inter-agency panel that investigates foreign takeovers of US assets for possible security threats, said the panel had imposed security requirements on the venture. These include procedures that dictate whether foreigners can work on US equipment and software.
But the government’s interest in the industry – reinforced by the tough measures it imposed on Alcatel’s merger with Lucent – raises questions about whether the inter-agency panel is going beyond its mandate of identifying and preventing risky foreign takeovers.
“The process has become a tool for Cfius to impose security requirements on foreign companies, while the government lacks the legal authority to impose them on US companies,” said David Marchick, a lawyer at Covington & Burling in Washington.
The mitigations agreement, or conditions to which a company agrees to gain regulatory clearance, could set a precedent in an industry that is bracing for consolidation globally.
In particular, any deal involving Nortel Networks, which does sensitive work for the US government, would face a lengthy investigation.
Mr Marchick said mitigation agreements should address the “marginal increase in national risk” associated with a foreign acquisition – not general security concerns the government believes exist, regardless of whether an owner is foreign or domestic.
The joint venture, due to close in the first quarter of 2007, will create the third-largest supplier of equipment to telecoms companies, after Alcatel-Lucent and Ericsson.
Nokia said it regarded its conversations with the government as confidential and declined to comment on discussions or agreements it had reached with authorities. Siemens also declined to comment.