Exclusive - AppLovin tweaks Chinese takeover deal after U.S. pushback

By Liana B. Baker

(Reuters) - AppLovin has tweaked a $1.4 billion agreement to sell itself to Chinese buyout firm Orient Hontai Capital into a debt investment, the U.S. mobile marketing firm said on Tuesday, after the U.S. government pushed back against the original deal.

The move illustrates how companies have been looking for ways to get their deals past the Committee on Foreign Investment in the United States (CFIUS), a U.S. government panel that scrutinizes transactions for potential national security threats.

CFIUS has become more reluctant to approve Chinese deals since the inauguration of U.S. President Donald Trump in January, and U.S. lawmakers have been introducing bills to toughen U.S. foreign investment rules amid growing concern about Chinese efforts to buy U.S. high-tech companies.

AppLovin told Reuters in a statement that it had abandoned plans to sell a majority stake in Shanghai-based Orient Hontai Capital. Instead, it said it had accepted an $841 million debt investment from Orient Hontai Capital.

It also said Orient Hontai completed a 9.98 percent investment in AppLovin for $140 million in January 2017.

The $140 million equity investment implies a valuation for AppLovin of about $1.4 billion, the same price as the deal it struck with Orient Hontai more than a year ago.

"This fully restructured agreement permits us to maintain full control of our business while accessing additional liquidity to finance our continued global growth," AppLovin Chief Executive Adam Foroughi said in the statement.

AppLovin and Orient Hontai have notified CFIUS of the new arrangements, but they do not believe the new deal will be scrutinized by CFIUS because it does not give Orient Hontai any control of the company, a source close to the deal said.

CFIUS had previously expressed concerns about the security of the company's data under a foreign owner, according to a separate source familiar with the matter.

Orient Hontai Capital is an affiliate of Orient Securities Company Limited , a public listed company in Shanghai. It has invested in gaming companies such as Shanda Games, China Mobile Game Entertainment and FunPlus Games.

Orient Hontai could not immediately be reached for comment.

Palo Alto, California-based AppLovin's investors include Maynard Webb, a former tech executive and chairman of Yahoo Inc, and John Burbank, founder of Passport Capital, a San Francisco-based hedge fund. AppLovin had only raised $4 million in funding before its deal with Orient Hontai Capital.

CFIUS has toughened its stance on foreign deals this year and rejected acquisitions such as the sale of Lattice Semiconductor to a Chinese-backed private equity firm and the sale of mapping company HERE Technologies to a China-backed group of investors led by NavInfo Inc.

(Reporting by Liana B. Baker in New York; Editing by Bernadette Baum)