BlackRock Offers to Buy Cofense Stake from Russia-Linked Firm, With a Catch

A rare showdown between a national-security panel tasked with overseeing foreign-investment in U.S. companies and a Russia-linked firm is nearing a potential resolution.

The Committee on Foreign Investment in the U.S., known as Cfius, last year ordered a private-equity firm with ties to wealthy Russians to sell its stake in a U.S. cybersecurity firm called Cofense Inc. American officials had raised national-security concerns about the amount of foreign money invested in the private-equity firm, Pamplona Capital Management, given the nature of Cofense’s business.

BlackRock Inc.’s private-equity-funds arm has agreed to take over Pamplona’s minority stake in Cofense, said people familiar with the talks. Under the proposal, no money would change hands now, with Pamplona being paid if shares of Cofense are sold down the road, some of the people said. The proposed deal was sent to Cfius for approval Friday, some of the people said.

Representatives for BlackRock and Pamplona declined to comment.

The unusual terms of the deal would make it a rare instance in which a sale ordered by Cfius is structured to retain economic interest for a seller. The terms are intended to accomplish Cfius’s goal of limiting foreign investors’ access and sway over critical technology in ways that could hurt the U.S.

Cfius and the trustee overseeing the sales process must still approve the deal for it to take effect. If they do so, the deal could be announced as soon as next week, some of the people said.

Cofense simulates and detects attacks transmitted via email to help companies deal with security threats. The Leesburg, Va.-based firm counts U.S. corporations among its customers.

Pamplona was founded in 2005 by

Alexander Knaster,

the former chief executive of Russian bank Alfa Bank. Wealthy Russians who have invested in Pamplona funds include

Mikhail Fridman,

among others, according to a person familiar with the matter.

A spokesman for Mr. Fridman has previously told The Wall Street Journal Mr. Fridman understood Cfius to be concerned about the general level of foreign money in Pamplona, and not specifically with Mr. Fridman’s involvement.

It couldn’t be determined Friday how Pamplona’s share of future gains might be different from what it would be if Pamplona were to hold on to its stake. But the deal is intended to strip Pamplona and its foreign-fund investors of any ability to influence the company, according to people familiar with the matter.

Cofense was valued at around $400 million in a deal announced in February 2018, when BlackRock acquired it with a group of investors that included Pamplona. Recent bids valued the company substantially less, some of the people said.

Since Cfius intervened in March 2018, Cofense has lost business as its senior management team has been occupied with the sale and completing a Cfius-ordered audit, one of the people said. In a statement in April, the company said: “Cofense continues to cooperate with Cfius and to comply with all prescribed actions as a result of this investigation.”

Cfius previously focused on deals in which foreigners took controlling stakes in U.S. businesses, and filing for reviews was optional. Its mandate was significantly broadened last year to reviewing all deals that would give foreign investors access to technology the committee believes could threaten the U.S.’s national security and technological superiority.

The process of selling Pamplona’s Cofense stake has been complicated.

Pamplona failed to find a buyer before the July 19 deadline set by Cfius. An initial bid from BlackRock was rejected as too low. People familiar with the process said Pamplona had dragged out parts of the deal process, in what lawyers and investors say was a rare snub to the committee.

Cfius in late July sent a letter to Cofense and Pamplona warning they were in “material breach” of Cfius’s order and faced fines for each day they failed to find a buyer.

BlackRock, which has been expanding its private-equity presence, came back with another bid in late July but talks fell apart. BlackRock and Pamplona reengaged in August.

Write to Dawn Lim at dawn.lim@wsj.com, Will Louch at william.louch@wsj.com and Juliet Chung at juliet.chung@wsj.com

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