A year after the €4 billion ($4.8 billion) takeover of robotics maker Kuka by Chinese appliances maker Midea, new regulations are on the table in Brussels and Berlin aimed at restricting such acquisitions.
The Kuka purchase – the largest-ever Chinese takeover in Germany – angered the German government, which feared a sellout of technology to China. The deal came on the heels of three other big Chinese takeovers in Germany last year, including the sale of chipmaker Aixtron and machine maker KraussMaffei. Germany was not able to halt these takeovers, although US authorities blocked Aixtron’s deal due to security concerns.
As China’s takeover spree continued this year, Germany lobbied in Brussels for stricter regulations. Together with France and Italy, German Economics Minister Brigitte Zypries convinced the EU to take action.
Last week, European Commission chief Jean-Claude Juncker proposed a “framework for investment screening” to “protect our collective security if needed.” It aims better vetting of state-backed, non-EU buyers who seek to purchase European companies in hi-tech manufacturing, infrastructure and energy sectors.
Ms. Zypries called the Commission’s plan an important success “for us and our companies that are often exposed to unfair competition with company takeovers that don’t conform to market rules.”
Foreign direct investment safeguards jobs and innovation in Europe. Volker Treier, deputy managing director, Association of German Chambers of Commerce
She said the changes would give her ministry, which is in charge of monitoring acquisitions, added scope. “For the first time economic criteria can be included, which means we can now check whether the investments are state-financed and thereby not market-based,” she said. In addition, further key technologies could now be included in the screening of takeovers, for example in the fields of artificial intelligence, robotics and semiconductors, according to the minister.
German business leaders, however, are alarmed at the EU’s proposal. “Foreign direct investment safeguards jobs and innovation in Europe,” said Volker Treier, deputy managing director of the Association of German Chambers of Commerce. Open borders were the foundations of prosperity, especially for the export-focused German economy, he added. “Concern has been expressed in some sectors of the economy that foreign investment partners could react negatively to the tightening of investment rules,” said Mr. Treier.
The BDI Federation of German Industries and the VDMA German engineering industry association have also criticized the plans. They warned that the definition of industries needing protection was so broad that the proposed changes could allow EU authorities to ban takeovers at will.
The EU Commission rejected the criticism. “Anyone accusing us of expanding the scope for screening too far hasn’t understood what we proposed,” Commission Vice-President Jyrki Katainen told Handelsblatt. “Our proposal doesn’t expand the scope of national governments to screen foreign direct investment,” the former Finnish prime minister said. “It merely creates a mechanism to increase transparency.”
Mr. Katainen said it was up to each member state to check a planned acquisition by a foreign investor. The basis for a decision – a possible threat to national security, or to public order — hadn’t changed, he said, adding that three changes were proposed.
Firstly, every EU member state should inform the EU once a year what direct investments had been made on its territory. Secondly, governments should inform the other member states, as well as the Commission, whenever they review a planned investment. Thirdly, the Commission and other states would have the right to make a statement on it.
While Germany views the proposal as an improvement of existing regulations, some experts disagree, saying the EU plans wouldn’t increase the powers of national governments to curb takeovers. “Control over investments is still tied to whether it’s a threat to national security or public order, so that excludes purely political considerations,” said Vera Jungkind, a foreign trade and regulatory law specialist at law firm Hengeler Mueller. EU rules ensured the free movement of capital, meaning that takeovers could only be blocked on national security or public order grounds, she said.
Even under today’s rules, there’s nothing to stop national governments taking the state ownership of an investor or the impact on technologies such as robotics into account in assessing the threat posed by a takeover, she said.
To be sure, the German government had already taken action before Mr. Juncker made his proposals. It adopted new regulations in August allowing it to block takeovers, provided they could endanger critical infrastructure in key sectors such as power or telecommunications. It also widened its powers to scrutinize takeovers of companies developing or manufacturing certain defense technologies.
Those changes had “increased the uncertainty among companies over when and how they have to get in touch with the federal economics ministry regarding possible foreign investments,” said Mr. Trier. The EU proposals would increase that uncertainty further, he added.
Dana Heide is a political correspondent for Handelsblatt in Berlin, focusing on the Economics Ministry, digital policies, the Free Democratic party and small and medium-sized companies and innovation. Till Hoppe reports on politics for Handelsblatt, with a focus on defense, domestic policy and cyber issues. David Crossland and Gilbert Kreijger adapted this story for Handelsblatt Global. To contact the authors: [email protected] and [email protected]