Germany intends to further broaden its mandatory FDI screening

The German Federal Ministry of Economics and Energy (BMWi) published a draft proposal for the changes to the Foreign Trade and Payments Regulation (AWV). The draft follows an earlier draft amendment to the Foreign Trade and Payments Act (AWG) which introduces amendments to reflect some changes brought about by the EU Regulation establishing a framework for the screening of foreign direct investments into the Union (Regulation (EU) 2019/452, EU FDI Screening Regulation) (see here).

This new proposal focusses on the details of the German foreign directive investment (FDI) review mechanism and in particular broadens the scope of the mandatory review. The proposal is intended to respond to the developments of the recent weeks and focuses on the health sector. Therefore, the definition of companies in the health sector whose acquisition by a foreign (non-EU) investor may pose a threat to public order or public security will be extended.

Amended list of “Critical Companies”

The list of target companies that trigger a notification in case of an (indirect) acquisition of 10% of the voting rights shall include in future:

• companies providing services which are necessary to ensure the freedom from interference and functionality of state communications infrastructures;
• companies designing or manufacturing personal protective equipment (within the meaning of Article 3 (1) of Regulation (EU) 2016/425) or suppling preliminary products or components for the design or manufacture thereof;
• companies developing, manufacturing or distributing medicinal products which are essential for ensuring public health care, including their starting materials and active ingredients, or companies who are the holder of a corresponding marketing authorization under pharmaceutical law;
• companies developing, manufacturing or distributing medical devices which are intended for the diagnosis, prevention, monitoring, prediction, prognosis, treatment or alleviation of life-threatening and highly contagious infectious diseases, or supplying preliminary products or components for their development or manufacture;
• companies developing, manufacturing or distributing in vitro diagnostic medical devices which serve to provide information on physiological or pathological processes or conditions or to determine or monitor therapeutic measures in connection with life-threatening and highly contagious infectious diseases, or supplying preliminary products or components for their development or manufacture; or
• companies extracting or processing raw materials or their ores as listed in Annex 1 to the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the list of critical raw materials for the EU of 13 September 2017 (COM(2017) 490 final).

Next Steps

The draft proposal has been published for comments by affected industry players which are due by 30 April 2020. Thereafter, the draft proposal shall be submitted to the Federal Cabinet (Bundeskabinett) for decision and adoption.

The BMWi already announced that further proposals for amending the foreign investment regime will follow shortly. In this regard a more detailed definition of “critical technology” is expected and companies engaged with such “critical technology” will become subject of the notification requirement under the 10% threshold. The fields of “critical technology” have been identified as artificial intelligence, robotics, semiconductors, biotechnologies and quantum and nuclear technologies, but the details remain unclear.

As further changes are to be expected, the M&A landscape will shift, and this extended regime will require new considerations and careful planning for transactions to avoid pitfalls under the new regime.