Germany plans law against foreign takeovers

Germany plans to introduce a law preventing takeovers of strategic industries, in a move directed against sovereign wealth funds orginating in countries such as Abu Dhabi, Saudi Arabia and China. The law also targets hedge funds and state holdings from non-EU countries, such as Russia’s Gazprom.

According to a report in the print edition of Süddeutsche Zeitung, the draft, which was presented to Chancellor Angela Merkel’s government on Tuesday (30 October), would bring German law in line with existing similar laws in France, the UK and other countries. 

The law would give the German federal government the right to veto any foreign investment amounting to 25% or more of a company’s stakes. When such an investment is notified, the government would have four weeks to either approve or veto it. In cases of secretive investments on stock markets, the governement would have three months to decide and could even call for a roll-back of the deal – a move that is intended to encourage foreign investors to notify partial takeover bids. 

As Süddeutsche reports, the draft does not name specific industry branches besides defence and encryption, where foreign investment is already subject to national regulation. The sole criterium for a possible veto is, according to the report, national security. 

In what has grown into a highly emotionalised debate in the country, the law has been pushed for by the CDU, the Conservative partner in Germany’s grand coalition and the party of Chancellor Angela Merkel. It was drafted in the ministry of the economy, which is led by Michael Glos, a member of the CDU’s Bavarian branch, the CSU. Roland Koch, minister-president of Hessia and one of the most influential CDU politicians, was quoted recently as warning that Russian and Chinese investors “would be in a position to buy the whole DAX” (the stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange). 

Economic and Monetary Affairs Commissioner Joaquín Almunia has also warned of the growing potential of foreign investment to take over strategic industries in the EU: “We have good reasons,” Almunia said in an interview last month, “to ask these funds to declare what kind of assets they want to invest in, what criteria they apply to decide their investments, and what the distribution of their investments is.” He added: “If they don’t agree to these criteria, we can find good reasons to react in some cases, where these funds try to invest in some strategic sector or try to move towards some specific industries.”

Sovereign wealth funds, into which some countries have invested state revenues from trading in petrol and on financial markets, are said to control US-$2.5 trillion worldwide, with more than half of those assets controlled solely by the Abu Dhabi Investment Authority. 

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