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German government blocks company acquisition by foreign investors for the first time

Ban expected based on the new Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung; “AWV”)

In July 2017, an amendment to the German Foreign Trade and Payments Ordinance was adopted. The objective was to give the Federal Ministry for Economic Affairs and Energy enhanced control in case investors based outside the EU and the European Free Trade Association (EFTA) wish to acquire at least 25 percent of the voting rights in a German company if said acquisition endangers Germany’s public order or security.

In addition, the ordinance now stipulates in particular that investments in companies operating so-called critical infrastructure may lead to a threat to public security or order. The ordinance introduces an obligation to notify acquisitions to the Ministry for Economic Affairs and Energy so as to enable the Ministry to initiate a formal investigation procedure.

Now, the federal government is apparently preparing for the first ban under the new Foreign Trade and Payments Ordinance. The German government is expected to block the purchase of the machine tool manufacturer Leifeld Metal Spinning AG based in Ahlen, Westphalia, by Chinese investors.

The leading German business magazine WirtschaftsWoche reports that Leifeld is a technology leader in the area of high-strength materials used not only in the aviation and aerospace industries but also in the nuclear sector.

Government prevents entry into German power grid

On July 27, 2018, another government intervention has become known. The state-owned development bank Kreditanstalt für Wiederaufbau (KfW) plans to temporarily acquire a 20 percent stake in the transmission system operator 50Hertz. The minority stake currently put up for sale will be acquired on behalf of the federal government for “security-policy considerations”.

50Hertz is one of the Germany’s four large transmission system operators and supplies electricity to around 18 million people through its power grids in northern and eastern Germany.

25 percent threshold for ban under Foreign Trade and Payments Ordinance

The background is that the state-owned Chinese network operator State Grid Corporation of China (SGCC) previously intended to purchase the 20 percent minority stake in 50Hertz from the Australian Investment Fund IFM.

By purchasing a 20 percent minority stake, the Chinese investor would remain below the 25 percent threshold set by the Foreign Trade and Payments Ordinance. As a consequence, the purchase could not have been stopped despite the fact that the power grid of 50Hertz belongs to the so-called critical infrastructure.

However, the federal government has found a way to prevent the purchase and took advantage of the case’s special circumstances. According to press releases, the Belgian TSO Elia, which holds 80 percent of shares and is the majority shareholder of 50Hertz, had a purchase option for the 20 percent minority stake. Elia has now exercised this option and purchased the minority stake for immediate resale to the KfW.

As the federal government cannot always rely on circumstances like these, the question arises as to whether the government will lower the 25 percent threshold contained in the Ordinance in the near future. Should this be the case, we will explain the details in our blog.

We will be pleased to advise you, if you are a seller or a foreign investor wondering which effects the most recent developments may have on the sale or purchase of your shareholding.

Continue reading:
Foreign Direct Investments (FDI) in German “Critical Infrastructure” by Non-EU Investors
Performing corporate acquisitions (M&A) – advice and review crucial in advance

Phillipp von Raven

Phillipp von Raven

Attorney Phillipp von Raven specializes in the fields of corporate law and M&A/corporate acquisition as well as international business law and general cross-border commercial law.

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