Foley & Lardner LLP partner Nicholas O’Keefe commented on the ‘golden share’ arrangement included as part of the approval process for Nippon Steel’s acquisition of U.S. Steel in Agenda, a Financial Times publication.
The ‘golden share’ gives the U.S. government veto powers over business decisions. O’Keefe said the government’s involvement in the deal could potentially hamper dealmaking, particularly in sectors deemed a national security risk.
“There’s lots of smaller cross-border deals that are still going ahead,” O’Keefe explained. “But for the big deals, whether it’s potentially a national security risk or something that the government can claim as a national security risk…this is going to put a little bit of a damper on that!”
He said that boards of sell-side companies – especially those attractive to foreign buyers – should “have this on their radar screen,” and try to push risk onto the buyer.
“If the government now views this golden share as a fair game and just a tool that they can employ whenever they choose, the target board doesn’t really care that much as long as the deal closes and their shareholders get paid,” O’Keefe continued, noting that to mitigate risk, boards should consider including a contract provision that forfeits the buyer’s ability to walk away from a deal should the government require a golden share.
O’Keefe emphasized that this could be an issue going forward for boards of target companies in the United States “if there are no buyers because all the buyers have decided this is just a disaster.”
“Foreign buyers are just going to be very leery,” he added.
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