On March 6, 2020, President Trump issued an Executive Order requiring Beijing Shiji Information Technology Co., Ltd., a public company organized under the laws of China (“Shiji”), to divest its acquisition of StayNTouch, Inc. (“StayNTouch”), a US-based hotel property management software company. The Order is the sixth Executive Order to date prohibiting the acquisition of a U.S. business by a foreign person, pursuant to the authorities that allow the Committee on Foreign Investment in the United States (“CFIUS”) to review foreign mergers and acquisitions in the United States, and was issued 18 months after Shiji’s acquisition of StayNTouch in September 2018.
StayNTouch offers a cloud-based property management system (“PMS”) to hotels that help to track reservations and room inventory, which means that the company likely handles a significant volume of sensitive personal data, as well as travel-related location information. This suggests that the primary national security concern with the transaction relates to foreign access to the sensitive personal data, including U.S. citizens’ identification and location data, as well as potential access to the rooms of those individuals.
According to the Executive Order, President Trump determined there is credible evidence that Shiji and its wholly-owned Hong Kong subsidiary “might take action that threatens to impair the national security of the United States.” On the basis of those findings, President Trump ordered Shiji to divest its interests in (i) StayNTouch, (ii) StayNTouch’s assets, intellectual property, technology, data, personnel and customer contracts, and (iii) any operations developed, held or controlled by StayNTouch at the time, or since, Shiji’s acquisition within 120 days, unless such date is extended for a period not to exceed 90 days by the CFIUS. In the interim, Shiji and its subsidiaries and affiliates are prohibited from accessing hotel guest data through StayNTouch.
This Executive Order is the latest example of U.S. government using its CFIUS authorities to ramp up scrutiny of Chinese acquisitions of U.S. businesses based on national security risks. A copy of the Executive Order can be viewed here.