On December 9, 2012, American International Group (NYSE: AIG) agreed to sell 80.1 percent of International Lease Finance Corporation to Jumbo Acquisition, a consortium of Chinese investors, for approximately $4.2 billion. Jumbo also received an option to purchase an additional 9.9 percent of ILFC for $523 million if additional investors joined the group.
Jumbo was required to escrow 10 percent of the purchase price by the later of March 15, 2013, or 10 days after CFIUS approved the deal without imposing "burdensome" (i.e., materially adverse) conditions. Closing was to occur by May 15.
Evidently, one or more closing conditions remained unmet as of May 10, when the parties agreed to extend the closing deadline to June 14. On May 31, AIG filed an 8-K announcing that Jumbo had not yet escrowed the 10 percent deposit, and the following Monday, AIG CEO Robert Benmosche reportedly questioned whether the deal would be completed.
Two days later, on June 5, AIG filed another 8-K announcing that the deposit had been escrowed. Neither the May 31 nor the June 5 announcements provided any context; they did not even disclose the amount deposited, referring only to the acquisition of "up to" 90 percent of ILFC. Based on the terms of the original December 9 agreement, however, one could infer (as Reuters did--also citing a "source familiar with the situation") that CFIUS had cleared the transaction.
Which brings us to this morning's AIG 8-K, which announced Saturday's further amendment of the ILFC sale agreement. This amendment extends the closing deadline by another six weeks, to July 31. It also removes most of the "no shop" provisions from the original agreement (a topic for others to consider). The amendment also allows AIG to terminate the agreement prior to July 31 if the company determines in good faith that certain closing conditions will not be met by that date. Confusingly, the enumerated conditions on which AIG can rely include those relating to CFIUS approval.
So we repeat the question from the title of this article: Has CFIUS already approved the sale of ILFC to Jumbo or not? The escrowed deposit on June 5 suggests that CFIUS did so. But if it did, why does this weekend's amendment now permit AIG to rely on the absence of CFIUS approval to terminate the deal?
Theoretically, a normal CFIUS process (not requiring a Presidential decision) should take up to 75 days: 30 days for an initial review period, and 45 days for a second-stage investigation if one is deemed necessary. Practically speaking, however, the process can take longer. The clock does not start until the notice to CFIUS contains the long list of information described in section 800.402 of the CFIUS regulations. The clock can restart if CFIUS rejects a filing for material omissions or misstatements (requiring submission of a new filing) or if there are material changes to the transaction under review. Finally, the clock can restart if the parties voluntarily withdraw and refile their notice. This can be an accommodation to allow CFIUS more time to untangle complex issues, or it may allow CFIUS and the parties sufficient time to negotiate a mutually acceptable risk mitigation agreement.
If CFIUS has not already cleared this transaction, the number of foreign investors may have been a factor. Initially, Jumbo comprised three investors: New China Trust Co., Ltd., China Aviation Industrial Fund, and P3 Investments Ltd. However, today's filing stated that Jumbo had escrowed a total deposit of $475 million; that figure indicates that the option to acquire more shares of ILFC had been exercised, and that one or two additional investors--New China Life Insurance Co., Ltd., and Tianjin ICBC International Investment Advisor LLP--had joined the consortium.
The participation of four or five foreign investors, and the timing of their participation in the transaction, could have complicated the process. For instance, CFIUS might have had to require a new filing and restart the clock if the "option" investors joined very late in the process--as late as last week.
Ultimately, we do not know whether or how far this transaction has gone through the CFIUS process, or the specific path by which it got to this point. Given CFIUS' strict confidentiality rules, we cannot expect the government to fill in the blanks. Unfortunately, through SEC filings that send mixed messages, AIG is not helping.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.