In this context, the traditional market-liberal approach to foreign investment control in Germany has been gradually changing. Following the acquisition of German robotics company Kuka by Chinese Midea in 2016, there was widespread political concern and scepticism about the adequacy of existing rules, which did not allow the German government to block the transaction. This led to a first revision of foreign investment rules in 2017, whereby business sectors of particular relevance to public order or security (Sensitive Business Sectors) were explicitly addressed and made subject to a notification obligation, and timelines for review were significantly expanded. When State Grid Corporation of China in 2018 twice tried to purchase a minority stake of 20 per cent in 50Hertz, the electricity transmission system operator, the government had no legal tools at hand to block the acquisition as foreign investment rules at that time only applied at a threshold of 25 per cent of voting rights. The German government found a workaround via Elia, the Belgian utility and co-shareholder in 50Hertz. For both tranches, Elia exercised a right of first refusal with a pre-wired sale of the second 20 per cent stake to German state-owned bank KfW. Interestingly, the German government also used an acquisition by KfW of a 23 per cent stake in the German biotech company CureVac to prevent a takeover by a foreign investor, even though the concern that a vaccine against covid-19 developed by CureVac would not be made available to Germany and the EU following such a takeover could have been addressed in the framework of an FDI review.
In August 2018, the German government authorised the prohibition of a transaction for the first time, when Chinese Yantai Taihai Corporation attempted to acquire Leifeld Metal Spinning, as the target produced high-tech materials relevant for the nuclear sector.
In light of the 50Hertz transaction, German rules on foreign investment were tightened a second time in late 2018. The trend to more regulation and a tighter government review culminated in 2020 and 2021, which saw a series of amendments significantly expanding the scope of German FDI rules. The most recent changes, which are described in more detail under Section II below, resulted in an unprecedented increase not only in the number of notifiable transactions but also in cautionary applications for a certificate of non-objection. It is to be expected that this trend will continue – at least until there is a more robust experience with the new rules in general and the definition of the Sensitive Business Sectors in particular.
In practice, the approach taken by the authorities remains cautious, and the exercise of prolonged review periods is a realistic risk where investments in certain sensitive areas are concerned, with a resulting impact on overall transaction timelines and transaction certainty.
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