Germany tightens review of foreign investments

The Federal Government has amended its existing rules for the review of foreign investments in German companies by investors from outside of the European Union.

Given the increase of mergers and acquisitions both in terms of the number of transactions as well as complexity, it was felt that the review mechanism needed to be adapted in particular in certain key sectors and infrastructures.

Under the existing rules the Federal Ministry for Economic Affairs could review the acquisition of German companies by investors from outside the European Union irrespective of the sector of activity of the company and intervene and prevent such transactions which were contrary to the public order or concerned security interests of Germany. Specific review rules applied in relation to companies active in the defence sector, encryption technology and certain satellite observation systems.

The new rules extend the review of transactions irrespective of the sector of activity by clarifying in which cases the public order may be affected by an investment of a foreign investor. The review rules have been extended to capture companies which are active in the field of civil technology which can be security relevant such as critical infrastructure in the fields information technology, telecommunication, cloud computing or industry-specific software for energy, water supply, transportation, health and financing activities. The new rules also focus specifically on companies which provide particular software in key sectors.

The review procedure has also been amended. From now on, the acquisition of a company active in the explicitly mentioned sectors needs to be notified to the Federal Ministry of Economic Affairs. There is no power to prohibit the implementation but the Federal Ministry of Economic Affairs may order a divesture in case the transaction is deemed to be contrary to public interests. In terms of review periods, the Federal Ministry for Economic Affairs now has a period of three months following the notification of the transaction to decide whether or not a detailed review procedure shall be conducted. The review periods only run from the notification onwards and the Federal Ministry for Economic Affairs can intervene for a period of five years following signing of the transactional documents in case no notification took place. The German regime still reviews as notifiable, transactions (directly or indirectly) reaching or exceeding 25% of the shares of a company in one of the sectors mentioned.

The Federal Minister for Economic Affairs indicated that they expect only a couple of more notifications per year but the specific list of commercial activities or sectors which are covered by the extended regime combined with the potential legal uncertainty on the basis of the five year period may lead to more notifications out of precaution.

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