United States Immigration Planning for Cross-Border Mergers and Acquisitions

San Diego Law Review Volume 27 | Issue 4 Article 4 11-1-1999 United States Immigration Planning for CrossBorder Mergers and Acquisitions Charles M. Miller Follow this and additional works at: https://digital.sandiego.edu/sdlr Part of the Immigration Law Commons Recommended Citation Charles M. Miller, United States Immigration Planning for Cross-Border Mergers and Acquisitions, 27 San Diego L. Rev. 831 (1990). Available at: https://digital.sandiego.edu/sdlr/vol27/iss4/4 This Immigration and Nationality XIV is brought to you for free and open access by the Law School Journals at Digital USD. It has been accepted for inclusion in San Diego Law Review by an authorized editor of Digital USD. For more information, please contact . United States Immigration Planning For Cross-Border Mergers And Acquisitions CHARLES M. MILLER* Recent business journal reports have provided details of the Japanese acquisition of prime United States companies and trophy real estate holdings. Figuring prominently in these reports was Matushita Electric's purchase of MCA for more than $6.5 billion;' Sony's expenditure of $3.478 billion to purchase Columbia Pictures Entertainment Company; and the Mitsubishi Estate Company's $846 million purchase of 51 percent of the company that owns Rockefeller Center, the Manhattan landmark comprised of nineteen buildings. The latest available statistics dwarf even these staggering price tags: Japanese foreign direct investment in the United States (FIDUS) increased in 1988 by 40 percent to $47 billion.' Despite the 1988 jump in Japanese investment belies, they still trail the British in total United States direct investment. A study of the largest foreign acquisitions in the United States during the last decade demonstrates that the Europeans and Canadians have also been willing to spend billions to acquire interests in such "American" companies as Standard Oil (British Petroleum, U.K., 45 percent, $7.6 billion), Pillsbury (Grand Metropolitan, U.K., $5.7 bil* Charles M. Miller practices immigration law in Studio City, California. Mr. Miller served as an attorney for the United States Immigration and Naturalization Service and as the Chair of the Immigration Specialty, Board of Legal Specialization of the State Bar of California. 1. Cieply & Citron, MCA Board Approves Key Terms of Buyout, L.A. Times, Nov. 26, 1990, at Al. 2. The Top 200 Deals, Bus. WK., Apr. 13, 1990, at 34; Deals Too Late For 1989, Bus. WK., Apr. 13, 1990, at 60. In July, 1990, the Mitsubishi Estate Co. acquired an additional 6.6% of Rockefeller Center for $110 million. Mighty Mitsubishi Is On The Move, Bus. WK., Sept. 24, 1990, at 98. 3. Bartlett, Japan'sAchilles Heel, L.A. Times, Nov. 12, 1989, at D3, col. 1. lion), and Farmers Group (B.A.T., U.K., $5.2 billion). 4 The 1990s find the Japanese poised to increase direct investments further. Japan's inclination to increase its investments in the U.S. is fueled by operating profits of its corporations, as well as Japan's ability to borrow money in the international markets at favorable interest rates.5 The crucial question for this decade is not whether foreign direct investment in the United States will happen, but what form the cross-border merger or acquisition will take when it does happen. The Japanese have traditionally utilized the "green field" approach to their United States entities (that is, they create their own companies "from scratch" rather than acquiring existing companies). The Europeans and the Canadians have had no similar aversion to crossborder mergers and acquisitions utilizing hostile take-over devices and leveraged buyouts (LBO's). Such cross-border deals accounted for 37.8 percent of all 1989 United States takeovers.' The United States' legal considerations of the prospective foreign direct investor not only involve the form of the investment, but also the future operation of the United States company after the acquisition is made. In turn, a key concern of the multinational company (MNC) is whether its crucial managers and high technology professionals can be quickly and legally transferred to work for the United States entity. Foreign investors quickly learn that the transfer of foreign employees, as well as the employment of United States workers, subjects the company to the employer sanctions provisions of the Immigration Reform and Control Act of 1986 (IRCA). 7 This employer sanctions law, with its system of graduated civil fines and criminal penalties for pattern and practice violations, has resulted in 26,356 INS investigations, 5,000 notices of violations, and $15.5 million in fines, through September 30, 1989.8 Under this law it is unlawful for an employer to knowingly "hire, recruit or refer for a fee for employment" an alien who is not a lawful permanent resident, or who is not authorized to work. The statute mandates that the employer comply with a verification system within three business days of any new hire by examining the new em4. N. GLICKMAN & D. WOODWARD, THE NEW COMPETITORS: How FOREIGN INVESTORS ARE CHANGING THE U.S. ECONOMY 40 (1989). 5. Holden, Japan Is Like A Kid In A Candy Store - A Rich Kid, Bus. WK., Dec. 4, 1989, at 50. 6. Farrell, Where Will Merger Mania Strike Next, Bus. WK., Dec. 18, 1989, at 32. 7. Immigration and Nationality Act of 1952, § 274(a), Pub. L. No. 82-414 (codified as amended at 8 U.S.C. §§ 1101-1524) [hereinafter INA]; 8 C.F.R. §§ 274a.2(b)(1), 274a.10 (1990). 8. INA § 274A(a); 8 U.S.C. § 1324a(a) (1988). 8 C.F.R. § 274a.2(b)(1) (1990). [VOL. 27: 831, 1990] U.S. Immigration Planning SAN DIEGO LAW REVIEW ployee's documentation of identity and legal right to work, and by completing an 1-9 form.' In the case of a corporate reorganization, merger, or sale of stock or assets, a successor employer who continues to employ the previous owner's work force has one of two choices under the Immigration and Naturalization Service ("INS") employer sanctions regulations. On the one hand, the new employer may elect to complete new 1-9's for the work force and treat each employee as a new hire. On the other hand, the successor employer is not required to reverify an employee's employment eligibility if it is considered continuing employment. 10 The successor employer in that case obtains the INS 1-9 form for each continuing employee from the previous owner's employment records. If the successor employer obtains the I-9's of the existing work force completed by the seller, good legal advice to investor clients would be to obtain an indemnification agreement from the seller to guard against future liability for possible employer sanctions violations. To facilitate the speedy staffing of the United States company as well as to avoid the IRCA sanctions, immigration attorneys are being consulted in the planning stage as an MNC considers a direct investment in the United States. Immigration issues may affect the MNC's choice of the form its United States investment will take. The choic (...truncated)