CFIUS undoes China’s Kunlun Tech’s acquisition of Grindr

CFIUS concerns stems from the fact that the Chinese dating app collects personal information including a person’s location, messages, which could include potential data of the U.S. military or intelligence personnel.

According to sources familiar with the matter at hand, a U.S. government national security panel has raised concerns over the ownership of Chinese gaming company Beijing Kunlun Tech Co Ltd which is trying to sell Grindr LLC – a popular gay dating app it has owned since 2016.

The Committee on Foreign Investment in the United States (CFIUS) has informed Kunlun that its ownership of Grindr constitutes a national security risk, said two sources. Specific concerned raised by CFIUS and whether attempts were made to mitigate them could not be learned.

The development comes in the wake of the United States increasing its scrutiny over app developers over concerns regarding safety of personal data, especially if some of it involves U.S. military or intelligence personnel.

In August 2018, Kunlun had said it was preparing for Grindr’s initial public offering (IPO). As a result of CFIUS’ intervention, Kunlun has now shifted its focus to an auction process to sell Grindr outright, given that the IPO would have kept Grindr under Kunlun’s control for a longer period of time, said sources.

To this end, Grindr has hired Cowen Inc, an investment bank, to handle the sale process and has begun soliciting acquisition interest from U.S. investment firms.

The development assumes significance as it represents a rare, high-profile example of CFIUS undoing an acquisition that has already been completed. Kunlun took over Grindr through two separate deals between 2016 and 2018 without submitting the acquisition for CFIUS review, said sources, making it vulnerable to such an intervention.

Sources preferred the cover of anonymity since the matter is confidential.

Kunlun’s representatives did not respond to requests for comment.

Grindr and Cowen declined to comment.

A spokesman for the U.S. Department of the Treasury, which chairs CFIUS, said the panel does not comment publicly on individual cases.

As of 2017, Grindr, which describes itself as the world’s largest social networking app for gay, bisexual, transgender and others, had 27 million users. The company collects personal information submitted by its users, including a person’s location, messages, and in some cases even someone’s HIV status, according to its privacy policy.

CFIUS’ intervention in the Grindr deal underscores its focus on the safety of personal data, after it blocked the acquisitions of U.S. money transfer company MoneyGram International Inc and mobile marketing firm AppLovin by Chinese bidders in the last two years.

Incidentally, CFIUS does not always reveal the reasons it chooses to block a deal since doing so could potentially reveal classified conclusions by U.S. agencies, said Jason Waite, a partner at law firm Alston & Bird LLP. “Personal data has emerged as a mainstream concern of CFIUS,” said Waite.

Grindr’s deal highlights the pitfalls facing Chinese acquirers of U.S. companies who seek to bypass the CFIUS review system, which is based mostly on voluntary deal submissions.

Previous examples of the the United States ordering the divestment of a company after acquisition, and after not filing for the CFIUS review process includes China National Aero-Technology Import and Export Corporation’s acquisition of Seattle-based aircraft component maker Mamco in 1990, Ralls Corporation’s divestment of four wind farms in Oregon in 2012, and Ironshore Inc’s sale of Wright & Co, a provider of professional liability coverage to U.S. government employees such as law enforcement personnel and national security officials, to Starr Companies in 2016.

Founded in 2008 by Zhou Yahui, a Tsinghua University graduate, Kunlun is one of China’s largest mobile gaming companies. It also owns Qudian Inc, a Chinese consumer credit provider, and Xianlai Huyu, a Chinese mobile gaming company.

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