HNA Units Sued by U.S. Tech Firm for Botching $325 Million Deal

(Bloomberg) -- Two HNA Group Co. units were sued in a New York court on claims they failed to complete a $325 million acquisition of a U.S. technology company because the Chinese group provided false and inconsistent information about its ownership to the Treasury’s national security-review panel.

Ness Technologies Sarl, which has its principal place of business in New Jersey, is seeking at least $65 million in damages from HNA’s Pactera Technology International Ltd. and HNA Group International Co., according to a complaint filed last week with the Supreme Court of New York. HNA’s failure to properly answer questions asked by the Committee on Foreign Investment in the U.S. by the deal’s Oct. 27 deadline caused the acquisition to collapse, according to Ness.

The lawsuit is the latest setback for the Chinese conglomerate, which has been grappling with scrutiny over its ownership and mounting debt costs following a global acquisition spree. The complaint also provides an inside look into the secret security-review process involving HNA, which is also seeking CFIUS clearance to complete its purchase of former White House aide Anthony Scaramucci’s asset management firm, SkyBridge Capital.

Representatives for HNA couldn’t immediately comment, and calls to Pactera’s office in Beijing weren’t answered.

According to the lawsuit, Pactera agreed in March to buy Jersey Holding Corp. and its subsidiaries from Ness Technologies for $325 million by Oct. 27 on condition the transaction gets approved by CFIUS. But the deal never got a formal review from the panel after HNA provided false and inconsistent information about its ownership and control during the CFIUS screening process, Ness said in the complaint.

More specifically, Ness Technologies claimed in its lawsuit that:

  • Pactera submitted a preliminary notice to CFIUS in late April.
  • In May, CFIUS began asking questions, kicking off some rounds of back-and-forth communication, as well as changes to the notice. In a revision on May 22, Ness Technologies found that some of Pactera’s descriptions about HNA’s ownership structure were inconsistent with publicly reported information in the U.S. and China. For example, the notice didn’t disclose that HNA Chairman Chen Feng owned shares in several HNA parent companies. Pactera revised the notice to address some discrepancies.
  • In June, Pactera held off on filing the revised application because it sought to coordinate with other deals that HNA was being questioned on by CFIUS -- notably the one involving SkyBridge Capital. CFIUS staff recommended that HNA refrain from filing their notice until it could provide consistent information about HNA’s ownership and control.
  • In July, CFIUS sent a list of 22 follow-up questions to HNA about its corporate structure, ownership and relationship with the Chinese government. Similar questions were sent to HNA in connection with its SkyBridge deal.
  • In August, CFIUS sent another round of 40 follow-up questions to HNA on the SkyBridge deal. Pactera updated the application by including that co-chairmen Chen and Wang Jian controlled HNA. The company also indicated that Chen was a member of the Chinese Communist Party and held a current government position in China.
  • In September, HNA provided fresh material disclosing several new entities in its ownership structure above Pactera. It also included information that HNA had a number of recent credit agreements with the Chinese government, including a loan exceeding $150 million.
  • In October, after asking more questions about HNA’s corporate structure, ownership and control, CFIUS said it continued to have material questions about the information provided by HNA and that the panel couldn’t begin the formal review until the questions were resolved.
  • In November, CFIUS staff told HNA and Pactera that they had not addressed CFIUS’s concerns and that their responses led to more questions. 
  • On Dec. 5, Ness Technologies terminated the agreement.

The case is Ness v. Pactera, 657241/2017, Supreme Court of the State of New York, County of New York.

©2017 Bloomberg L.P.