Obligation to report to the Federal Ministry of Economics in the event of the acquisition of shares in German companies by EU foreigners
In recent years, scrutiny of the acquisition of shares in German companies outside the defence sector by investors from outside the European Union and the EFTA states (Iceland, Liechtenstein, Norway and Switzerland) has been steadily intensified. The latest developments were implemented in order to meet the requirements of the EU screening regulation of 2020.
This was achieved by expanding the circle of German companies affected and introducing an obligation to report to the Federal Ministry of Economics under certain circumstances in combination with a prohibition on the enforcement of the acquisition. At the same time, the standard of review for the prohibition and for the imposition of conditions was lowered.
Obligation to report to the Federal Ministry of Economics
The obligation to report the acquisition of a share can always come into play if the affected German company carries out an activity listed in Section 55a of the Foreign Trade and Payments Ordinance (AWV). The list is very diverse.
It primarily includes companies that operate what is known as “critical infrastructure“, namely very important facilities in the sectors of
- information technology and telecommunications,
- transport and traffic,
- nutrition and
- finance and insurance,
whereby their size exceeds certain statutory thresholds.
This could be, for example, a power plant with at least 420 megawatts of nominal capacity or an airport with at least 20 million passengers per year.
Medical, software and raw materials companies also affected
However, this may additionally include evidently much less significant and possibly much smaller companies, such as those that:
- Develop or produce software that is industry-specific for the operation of “critical infrastructure,”
- Develop or manufacture medical devices or in vitro diagnostic medical devices for life-threatening and highly contagious infectious diseases,
- Develop or manufacture significant components or software for autonomous driving of motor vehicles,
- Develop or manufacture goods specifically for the operation of wireless or wireline data networks,
- Extract, process or refine certain “critical raw materials” or
- Farm more than 10,000 hectares of agricultural land.
Indeed, many other types of companies are also on the list, such as those involved in key technologies, including artificial intelligence, robotics, semiconductors, biotechnology and quantum technology.
Obligation to report may already exist in the case of indirect acquisition of 10 percent of the voting rights
The obligation to report to the Federal Ministry of Economics emerges upon conclusion of the relevant contract if the non-European investor directly or indirectly acquires the entire company or more than 10 or 20 percent of the voting rights (depending on the company’s activities) in the German company.
Purchase contract is invalid during the review and may not be implemented
In accordance with the now lowered standard of review, the Federal Ministry of Economics shall then examine whether the acquisition is likely to impair the public order or the security of Germany or another EU member state.
It can prohibit the acquisition altogether or allow it, subject to conditions, within specific time limits. During these periods, the purchase agreement is considered invalid and may not be implemented.
Review also possible in other sectors
In the event of the acquisition of a share by EU foreigners in companies active outside the defence sector in areas other than those mentioned above, the German Federal Ministry of Economics may also initiate a review of the acquisition under certain circumstances. However, there is no obligation to register.
WINHELLER advises companies on buying and selling
We advise buyers as well as sellers on the question of whether the intended purchase or sale of shares or entire companies is subject to an obligation to report to or a possible examination by the Federal Ministry of Economics and what this means for the intended transaction.