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Germany seeks more scrutiny of foreign buyouts

August 7, 2018

The German government has said it wants to be able to intervene earlier if a non-EU investor acquires 15 percent of a German company. Berlin has been wary of Chinese and US investors moving to take over key tech firms.

A trader sits at a desk in the Frankfurt Stock Exchange
Image: Getty Images/AFP/T. Lohnes

Berlin wants to lower the threshold for intervening in future investment and takeover bids by foreign firms, according to a report published early on Tuesday.

The new change would enable the German government to more easily review and possibly veto takeover bids of German companies that are deemed important for national security, German newspaper Welt reported.

What does Berlin want to change?

  • In the future, the Economy Ministry would be able to intervene if an investor outside of the European Union acquires a "direct or indirect" shareholding of at least 15 percent in a German company, according to a draft law that was seen by Welt.
  • Currently, Berlin can only intervene if an investor acquires a shareholding of 25 percent.
  • The changes would particularly pertain to companies involved in defense, infrastructure, or security-related technology.

'Our responsibility to protect security interests'

German Economy Minister Peter Altmaier told Welt that moving the threshold was necessary in order to better protect businesses in sectors deemed "sensitive."

"Until now, we've only been able to carry out reviews when at least 25 percent of a company's shares have been acquired. Now we want to lower this threshold so we can review more acquisitions in sensitive economic sectors," he added.

Altmaier said that although the government doesn't want to block investment or promote protectionism, it wants to know more about who is involved in takeovers of German businesses and what the motives are behind the moves.

"Of course we want companies to continue investing in Germany," he told the paper. "But there's also our responsibility to protect security interests, public order and public safety."

German Economy Minister Peter Altmaier in Berlin
Economy Minister Altmaier said although investments are welcome, Germany needs to assess the possible dangers posed by takeoversImage: picture-alliance/dpa/S. Stache

Government threatens takeover veto

The proposal would primarily target Chinese investors, with officials concerned that a recent rise in Chinese takeovers would eventually drain Germany's industries and lead to a loss of know-how in key, high-tech fields.

Some experts are also critical of the suspected role the Chinese government plays in the decisions behind Chinese takeovers of foreign companies.

Last week, Berlin showed it was willing to use its veto power to stop the takeover of German toolmaker Leifeld by the Chinese firm Yantai Taihai.

Leifeld specializes in high-strength materials, including some that are used in the nuclear sector. The German government raised concerns about the deal as Yantai Taihai was found to have business ties to Pakistan, which is one of nine countries in the world with nuclear weapons. The Chinese company withdrew its offer before the government could veto the move.

Europe cautious as China buys up foreign companies

US firms also seen as threat: Chinese firms aren't the only ones that the German government is concerned about. Last week, the US firm Diligent announced it was acquiring its German rival Brainloop, a data security firm.

According to the German newspaper Handelsblatt, the move sent shockwaves through Berlin as several of Brainloop's clients are major German corporations, including Adidas, Bayer and BMW. German and other European leaders have long voiced concerns about IT security standards in the US.

What happens next: Currently, a proposal to change Germany's Foreign Trade and Payments Ordinance has been sent to several ministries. A law granting the government more control could come into effect this year, according to Welt.

rs/aw (dpa, Reuters)

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