Germany Strengthens Foreign Investment Review Regulation in Response to Accelerated Chinese Mergers & Acquisitions TYPE

On July 12, 2017, Germany’s Cabinet reached consensus on strengthening the Ministry of Economy and Technology’s ability to regulate, review and, when needed, interdict takeovers of domestic companies in strategic sectors by non-EU entities.  This expanded capability comes in reaction to growing concern — including specifically within Germany — over Chinese acquisitions of companies that are deemed to hold strategic value.

The additional measures include:

– doubling the time for reviewing and investigating bids from two to four months (this is intended to allow greater input from intelligence services on a given deal);
— explicit inclusion of “indirect takeovers” (i.e., when domestic entities controlled by foreign companies are used to circumvent the review process) under the mandate of the Ministry of Economy and Technology’s review process;
— explicitly defining a “threat to public order” to include a diverse array of new sectors that are considered “critical.”

These new areas of scrutiny include: software companies that are used in the management of power grids; nuclear power plants; water supplies; telecommunication networks and other critical infrastructure assets; companies with access to critical data stored in the cloud; and additional defense companies manufacturing “key technologies.”

These measures are regarded as a delayed, but necessary, response to Chinese firm Midea Group’s controversial acquisition of German robotics maker, Kuka, in 2016 – which focused the attention of German and other European officials on the increased efforts of Chinese companies to acquire high-tech — and potentially dual-use — intellectual property and assets.  This response is also in part motivated by German frustration over the lack of reciprocity by China in terms of permitting similar investments by non-Chinese companies in their markets.  According to reports, some 37 German companies were taken over by Chinese entities last year.