Aussenwirtschaftsrecht and corporate investments in Germany – new hurdles for foreign investors

Full article now (for free) available on germanlawjournal.com/pdfs/Vol10-No11/PDF_Vol_10_No_11_1495-1504_Developments_Theiselmann.pdf– Abstract:

American Private Equity Funds, Russian Oligarchs or Arabian Sheiks – of late, many German Board Members negotiate with foreign investors about entering as new shareholders. The German Foreign Economy Act (“Aussenwirtschaftsrecht”) could become more relevant in this context, having led a quiet existence thus far. Having come into force 24 April 2009, Aussenwirtschaftsrecht enables the Federal Ministry of Economy (“Bundeswirtschaftsministerium” / BMWi) to prohibit purchases of German enterprises by non-EU residents under certain circumstances. This article shows the contents and relevance of the new law as well as its consequences for foreign investors involved in Mergers and Acquisitions re German companies.

Summary:
The new Aussenwirtschaftsrecht generates new insecurity with regards to M&A transactions: On the one hand every industry may be affected by a prohibition, whereas certain sectors (telecommunications, energy incl. oil or natural gas, universal postal services, railway nets, banks, pharmaceutical industry or chemicals industry) are presumably of special importance. On the other hand, vendors should preventively ask any potential buyers from abroad but also German based prospects (given the fact that external investors could be one of their main shareholders) for a written declaration that they comply with the new law or that they have received an Unbedenklichkeitsbescheinigung from the BMWi.

Additionally, investors from outside the EU or EFTA seeking to purchase of at least 25 percent of a German enterprise should consider an Unbedenklichkeitsbescheinigung at an early stage, ideally in combination with passing on the complete transaction files to the BMWi. Only in this way is a high level of legal and transaction safety possibly achieved. Conversely, investors prepared to risk of prohibtion and considering the intended purchase as unproblematic should desist from an announcement to the BMWi but bear in mind that the BaFin or the Bundeskartellamt could inform the BMWi, thereby triggering an assessment.

Due to the new law, the BMWi will get an improved overview of planned or ongoing M&A transactions in Germany, given that many investors or vendors will apply for an Unbedenklichkeitsbescheinigung as a precaution. But the German state gains this increased level of regulation only through significant administrative efforts