Potential Deal on Cofense Emerges -- WSJ
August 17 2019 - 3:02AM
Dow Jones News
By Dawn Lim, Will Louch and Juliet Chung
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 17, 2019).
A rare showdown between a national-security panel tasked with
overseeing foreign-investment in U.S. companies and a Russia-linked
firm is nearing a potential resolution.
The Committee on Foreign Investment in the U.S., known as Cfius,
last year ordered a private-equity firm with ties to wealthy
Russians to sell its stake in a U.S. cybersecurity firm called
Cofense Inc. American officials had raised national-security
concerns about the amount of foreign money invested in the
private-equity firm, Pamplona Capital Management, given the nature
of Cofense's business.
BlackRock Inc.'s private-equity-funds arm has agreed to take
over Pamplona's minority stake in Cofense, said people familiar
with the talks. Under the proposal, no money would change hands
now, with Pamplona being paid if shares of Cofense are sold down
the road, some of the people said. The proposed deal was sent to
Cfius for approval Friday, some of the people said.
Representatives for BlackRock and Pamplona declined to
comment.
The unusual terms of the deal would make it a rare instance in
which a sale ordered by Cfius is structured to retain economic
interest for a seller. The terms are intended to accomplish Cfius's
goal of limiting foreign investors' access and sway over critical
technology in ways that could hurt the U.S.
Cfius and the trustee overseeing the sales process must still
approve the deal for it to take effect. If they do so, the deal
could be announced as soon as next week, some of the people
said.
Cofense simulates and detects attacks transmitted via email to
help companies deal with security threats. The Leesburg, Va.-based
firm counts U.S. corporations among its customers.
Pamplona was founded in 2005 by Alexander Knaster, the former
chief executive of Russian bank Alfa Bank. Wealthy Russians who
have invested in Pamplona funds include Mikhail Fridman, among
others, according to a person familiar with the matter.
A spokesman for Mr. Fridman has previously told The Wall Street
Journal Mr. Fridman understood Cfius to be concerned about the
general level of foreign money in Pamplona, and not specifically
with Mr. Fridman's involvement.
It couldn't be determined Friday how Pamplona's share of future
gains might be different from what it would be if Pamplona were to
hold on to its stake. But the deal is intended to strip Pamplona
and its foreign-fund investors of any ability to influence the
company, according to people familiar with the matter.
Cofense was valued at around $400 million in a deal announced in
February 2018, when BlackRock acquired it with a group of investors
that included Pamplona. Recent bids valued the company
substantially less, some of the people said.
Since Cfius intervened in March 2018, Cofense has lost business
as its senior management team has been occupied with the sale and
completing a Cfius-ordered audit, one of the people said. In a
statement in April, the company said: "Cofense continues to
cooperate with Cfius and to comply with all prescribed actions as a
result of this investigation."
Cfius previously focused on deals in which foreigners took
controlling stakes in U.S. businesses, and filing for reviews was
optional. Its mandate was significantly broadened last year to
reviewing all deals that would give foreign investors access to
technology the committee believes could threaten the U.S.'s
national security and technological superiority.
The process of selling Pamplona's Cofense stake has been
complicated.
Pamplona failed to find a buyer before the July 19 deadline set
by Cfius. An initial bid from BlackRock was rejected as too low.
People familiar with the process said Pamplona had dragged out
parts of the deal process, in what lawyers and investors say was a
rare snub to the committee.
Cfius in late July sent a letter to Cofense and Pamplona warning
they were in "material breach" of Cfius's order and faced fines for
each day they failed to find a buyer.
BlackRock, which has been expanding its private-equity presence,
came back with another bid in late July but talks fell apart.
BlackRock and Pamplona reengaged in August.
--Kate O'Keeffe contributed to this article.
Write to Dawn Lim at dawn.lim@wsj.com, Will Louch at
william.louch@wsj.com and Juliet Chung at juliet.chung@wsj.com
(END) Dow Jones Newswires
August 17, 2019 02:47 ET (06:47 GMT)
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