What a national-security regulator could mean for media deals

Earlier this year, Semafor’s Liz Hoffman and Ben Smith reported that a potential sale of Forbes had stalled for fear of five letters: CFIUS. CFIUS is the Committee on Foreign Investment in the United States, a federal body that reviews overseas investments in US businesses on national-security grounds. The fear in the Forbes case was that CFIUS would not look kindly on the prominent involvement of Shiv Khemka, the Indian billionaire leading the deal, and his history of business ties to Russia. More recently, Sara Fischer reported for Axios that the consortium hoping to buy Forbes had dropped Sun Group, where Khemka is vice chair, as lead investor, hoping instead to obtain the bulk of the funding from domestic sources. Over the weekend, Fischer reported that Austin Russell, a twenty-eight-year-old US automotive-tech entrepreneur, will take an eighty-two percent stake in Forbes, though the deal, in Fischer’s words, may yet be “substantially paid for by foreign investors”—including Sun Group.

This was not the first time that observers had invoked the name of CFIUS in connection with a potential deal for Forbes—though on the previous occasion, the concern was not about Russia, but China. Last year, the magazine sought to go public via a special-purpose acquisition company, or SPAC. Forbes abandoned the plan as the market for SPACs cooled, but shortly before it did so, four Republican US senators, including Ted Cruz and Tom Cotton, wrote to Janet Yellen—who, as treasury secretary, chairs CFIUS—and urged her to review the SPAC in question and its ties to a Chinese sovereign wealth fund. “Forbes is a recognizable American brand with immense propaganda value to the CCP,” the senators wrote, using shorthand for the Chinese Communist Party. “Additionally, the CCP’s direction of Forbes’ editorial content and business operations, or its access to Forbes’ financial and personal research, could present a serious national security threat to the United States.”

CFIUS is more broadly relevant in media circles these days; a joke about the body’s potential to stall a media takeover even featured in last week’s episode of the media-business drama Succession. The body has recently been on the radar of tech reporters as it has conducted a review of TikTok, which is owned by the Chinese company ByteDance, with the Wall Street Journal reporting in March that CFIUS had threatened to ban the app in the US unless ByteDance sells up. 

TikTok is not what used to be termed a news-media company. But it is a company that disseminates news, and that news organizations use to reach consumers. And the recent reporting on Forbes—which, compared to the furor around TikTok, has flown somewhat under the radar—raised questions for me about the evolving role of CFIUS and how it might apply to more traditional news-media takeovers going forward. Were the Forbes concerns outliers? Or do they point to something bigger? The criteria by which CFIUS evaluates news-media takeovers, specifically, haven’t necessarily changed of late. One thing that has sharply changed—for CFIUS, media investors, and everyone else in the economy—is the geopolitical climate in which deals are getting done. 

CFIUS was founded in 1975, under the presidency of Gerald Ford, at a time when OPEC member states were increasingly investing in the US. In its early days, it had little consequential authority, but over the years a series of laws variously expanded and modified its powers and national-security focus, often in response to contemporaneous trends in foreign investment. In 2018, Donald Trump signed into law the Foreign Investment Risk Review Modernization Act, or FIRRMA, which, in addition to bringing more types of transaction under CFIUS’s jurisdiction, significantly expanded the body’s resources. Last fall, President Biden issued an executive order directing CFIUS to consider five sets of factors in its work, from supply-chain resilience to threats to sensitive personal data (though these were not new focuses for the committee).

In theory, CFIUS can review any foreign transaction that would confer control over a US business (and in certain specific cases, investments that do not confer control). Its focus is limited to national security in ways that are guided by law but ultimately discretionary. Officials from across the federal government can influence a given review, though only the president can formally block a transaction from going ahead. This has happened on just seven occasions, though marginal cases can be quietly withdrawn before reaching his desk.

CFIUS reviews in 2021 (the most recent year for which data is available) were concentrated in sectors of the economy—from power generation to semiconductor manufacturing—that have little in common with the media industry. But it is common for foreign transactions involving US media businesses, especially when a lot of money is changing hands, to go through a CFIUS review, or at least for dealmakers to seriously consider engaging with the process. Hypothetically, a media takeover could meet the conditions for a review to be mandatory, though such deals are much more likely to go via a voluntary track that constitutes the bulk of CFIUS’s work. (If a voluntary filing is approved, CFIUS cannot overturn it in the future; if a transaction is not filed, it can be overturned at a later date.)

Typically, Stephen R. Heifetz, a partner at the law firm Wilson Sonsini, told me, “there are two main things that people worry about with respect to an acquisition of a media business. One is the ability to influence the public. The second is sensitive personal data.” Heifetz and others with whom I spoke told me that the latter concern is more commonly raised around social-media companies than traditional media firms that may not have any more access to invasive personal information than the average business. Still, different publishers collect data to varying degrees. And high-profile critics of the recent Forbes deals—including the four aforementioned US senators—have expressed concern about a hostile foreign power getting its hands on that magazine’s information. Writing for Real Clear Policy in December, James “Spider” Marks, a retired US general, argued that access to “search terms related to the concerns Americans share about business, personal finance and politics,” alongside other data, could help the Kremlin and its intelligence services “influence US opinion—or even elections.”

Such commentary can come across as hyperbolically hawkish. But foreign investors with ties to Russia and China, in particular, are attracting more scrutiny right across Washington; in 2020, for example, Rep. Jim Banks, a rising Republican star from Indiana, introduced a bill that would have barred companies with ties to China from owning a majority stake in critical US businesses, including those “engaged in the production and dissemination of news media.” In general, what constitutes such “ties” can be hard to pinpoint, including, according to Heifetz, within CFIUS. “I often refer to the ‘six degrees of Kevin Bacon’ game, where Kevin Bacon is China or Russia,” he said. (By law, the CFIUS process must establish “credible evidence” that a takeover would harm national security, and that other laws aren’t sufficient to mitigate the risk, before a deal can be blocked.)

Whatever goes on within an individual CFIUS review—and these are to some extent a black box, due to confidentiality obligations—the present geopolitical climate, and how it’s perceived in Washington, may give media-deals lawyers more to think about as they weigh whether to engage with the body voluntarily. It strikes me that those of us who work for media companies have something to think about here, too—especially at a moment when our corporate overlords are increasingly looking overseas for capital. Who gets to own us? And who gets to decide that, and on what grounds? Conversations I had while writing this piece suggest that a debate as to what all this might mean has yet to really take hold across the industry. Ultimately, whether a given media owner is good or bad depends on their values and resources, not their passport. 

After breaking the Forbes-CFIUS story earlier in the year, Hoffman, of Semafor, went on CNBC to talk about it, and noted two trends underpinning her reporting: US national-security regulators viewing propaganda as the “next war,” and the fact that economic hawkishness is a rare dynamic that currently inspires relative bipartisan consensus in DC. Without asking Hoffman to divulge her sources, Andrew Ross Sorkin, the host, said that when he read her article, he felt as if someone was trying to send a message to the business community beyond the individual case of Forbes. “I think that message has clearly been sent,” Hoffman said.

Other notable stories:

• New York’s Jonathan Chait makes the case that the media is normalizing Congressional Republicans’ refusal to raise the debt ceiling unless Democrats make concessions on spending. Coverage has often conflated “negotiation, which is historically common in debt-ceiling bills, with extortion, which isn’t,” Chait writes. “We need to be clear about what is happening. [House Speaker Kevin] McCarthy is not horse-trading with Biden. He is extorting him. He might wish to pretend, à la Michael Corleone, that he is no different than any other powerful man, like a senator or a president. But he doesn’t want to hide it too much, because his power in this situation derives from letting it be known he is very much willing to inflict horrible pain upon innocent victims to get what he wants.”
• The Messenger—an ambitious new news site, spearheaded by the former Hill owner Jimmy Finkelstein, that has billed itself as pointedly unbiased—launched yesterday and faced some tough early reviews. CNN’s Oliver Darcy wrote that the site appears to be “something of a content farm. The outlet published dozens and dozens of stories, ranging from an interview with Donald Trump to a story on Ariana Grande. Most notably, however, the stories appeared to be chasing cheap clicks.” Insider’s Lucia Moses notes that The Messenger, which is free and ad-supported, appears “heavy on celebrity news and programmatic ads.” (Among its initial advertisers: the American Petroleum Institute.)
• In recent days, an apparent cyberattack has disrupted operations at the Philadelphia Inquirer—interfering with the weekend print schedule, briefly knocking out the paper’s online content-management system, and forcing its offices to close at least through today. The closure will shutter the paper’s newsroom to reporters as they cover today’s mayoral primary voting in Philadelphia, though bosses have insisted that election coverage will run as normal. It isn’t yet clear whether or why the paper was specifically targeted, though an investigation is ongoing. The Inquirer’s Jonathan Lai has more.
• Wong Kei-kwan, a prominent political cartoonist in Hong Kong who is also known as “Zunzi,” spoke to Jessie Pang, of Reuters, after Ming Pao—the only Hong Kong paper still publishing his work—ceased doing so after a barrage of official complaints. Wong told Pang that he plans to continue speaking out. “We’re a bit like firefighters,” he said. “Firefighters can’t flee when they see a fire, so we should stay here and record our times.” (ICYMI, Hsiuwen Liu wrote about the press in Hong Kong for CJR’s new issue.)
• And an Irish Times opinion piece characterizing the use of fake tan as racist stirred debate—but it turned out to be a hoax that had been written using generative artificial intelligence. The piece was submitted to the paper by a fake writer with a Twitter profile picture that was also generated using AI, in what the anonymous hoaxer described as an effort to mock “woke” journalists. The Irish Times deleted the piece and apologized.

ICYMI: The publisher of the Times on “journalistic independence”