US officials examine Abu Dhabi’s $3bn Fortress Takeover

US national security officials are examining the proposed $3bn acquisition of Fortress Investment Group by an Abu Dhabi sovereign fund, amid Washington’s concerns over the United Arab Emirates’ ties with China, according to people familiar with the situation.

The Committee on Foreign Investment in the United States is still in the early stages of its review. A decision will not be expected for at least several months.

Mubadala , based in Abu Dhabi, has agreed to purchase a majority share in Fortress from Japan’s SoftBank Group in May. Fortress manages assets worth $46 billion and specializes in distressed debt investments. Mubadala is led by Khaldoon Al-Mubarak and plans to close the deal during the first quarter 2024.

Mubadala Fortress and Mubadala declined to comment. The US Treasury overseeing the Cfius Process said that it would not comment on transactions it “may or may not be reviewing”, but that it is “committed” to “taking all necessary steps within its authority to protect US national security”.

The Cfius decision comes at a time when the Biden Administration is intensifying its scrutiny of China’s investment. They are also preparing to announce an executive order requiring US companies that invest in sensitive sectors, such as semiconductors and artificial intelligence or quantum computing, to notify the federal authorities. It would also ban investment in some areas.

revealed in the past that Cfius intervened to stop SoftBank from acquiring Fortress. Cfius can either require measures to mitigate their concerns or even block a deal. Cfius made SoftBank relinquish control of Fortress on a day-today basis and also took steps to monitor SoftBank’s direct influence over the investment firm.

Cfius, it was reported, was concerned at the time about SoftBank’s investments. These included a large stake of Alibaba Group in China, as well as the business connections of Masayoshi son, the founder of the company.

Mubadala purchased a nearly 10 percent stake in Fortress, and was cleared by Cfius for this purchase in 2019, according to sources familiar with the review. The people said that a new Cfius review was required for the plan to buy a further 60% of Fortress. Fortress insiders will own the remaining 30% of Fortress with a special share class that allows them the majority of its board.

Mubadala also has investments in the US. These include a share in US private equity company Silver Lake, thanks to Mubarak’s close relationship with Egon Durban, its co-chief executive.

Experts in the Cfius Process told us that the inter-agency group will likely take a closer look at the planned Fortress Takeover. One of those reasons is the growing concern in Washington about the budding relationship between Abu Dhabi, capital of the UAE and China.

The person stated that the pendulum was swinging back, and the scrutiny of sovereign wealth funds had increased. This person was referring to a period following the Cfius investigation into a deal for Dubai Ports World, the UK-based operator, to purchase P&O.

Cfius had approved the deal back in 2006. However, following protests from US politicians including Hillary Clinton at the time, the UAE forced DP World, which acquired five US port terminals when it bought P&O, to give up control.

US lawmakers were concerned about the vulnerability of China’s ports to terrorist attacks, not China itself. US lawmakers claimed that Dubai is a transfer hub for nuclear components going to Iran, Libya and North Korea.

Biden Administration was concerned by indications that China is building a military base at Khalifa Port, in the UAE as part of a project to project its military power. China has a base in Djibouti and is currently building a naval facility in Cambodia.

In September of last year, Joe Biden issued an order to Cfius telling them to pay attention to any deals that involved critical technologies such as artificial intelligence, quantum computers, and biotechnology. The order didn’t mention China by name, but US intelligence agencies often refer to these industries as places where China is trying obtain US technology.