On July 18, 2017, Germany passed an amendment to its foreign investment regime that will make acquisitions of German companies by foreign acquirers considerably more time consuming and potentially more complex. Chinese takeovers of German companies have increasingly come under scrutiny, after Chinese electrical appliance manufacturer Midea acquired German robotics producer KUKA. While the Minister of Economic Affairs insists that Germany remains one of the most open economies in the world, German investment control had already grown more restrictive in practice over the past months. The proposed takeover of German technology company Aixtron by Chinese investor FGC fell through, after the Minister of Economic Affairs revoked a clearance certificate. And in February 2017, Germany, together with France and Italy, called for more effective defense instruments at the European level to review politically motivated acquisitions of European tech companies by foreign investors. The new rules reflect this increasingly cautious approach to foreign investment.
The German investment control regime
In Germany, foreign investment is regulated by the German Foreign Trade Act (AWG) and by the Foreign Trade Ordinance (AWV), a ministerial ordinance of the German Federal Ministry of Economic Affairs and Energy (the Ministry).
Under these rules, the Ministry can review whether the acquisition of a 25% stake or more in a domestic company by foreign investors jeopardizes the public order or security of the Federal Republic of Germany. The rules distinguish between sector-specific reviews and cross-sector reviews.
The cross-sector review applies to any acquisition of a company by investors located outside the territory of the EU or the EFTA region. The review considers whether the acquisition represents a sufficiently serious and present threat which affects fundamental interests of society.
The sector-specific rules apply only to certain sensitive industries, and they apply even if the acquirer is located within the territory of the EU or EFTA. Sensitive industries are, for example, manufacturers and developers of war weapons and products with IT security features.
The recent amendment expands the competences of the Ministry and extends the periods for review.
New developments in the cross-sector review
The new rules introduce to some extent more legal certainty. The old regime did not define what is meant by a 'threat to the public order or security'. The...