Merkel’s Government Approves Tighter Rules on Takeovers

(Bloomberg) --

The German government agreed to tighten protections for companies from foreign takeovers as the coronavirus pandemic engulfing the global economy raises concerns about the vulnerability of key industries.

Angela Merkel’s cabinet approved the measures -- which apply to takeover bids from outside the European Union -- on Wednesday. They will enable the government to block acquisitions that present “potential interference,” a lower threshold than existing rules that envisage a security threat.

“We’re going to implement these rules so that we can protect our critical infrastructure more securely than we have before,” Economy Minister Peter Altmaier told reporters in Berlin. As well as shielding producers of medicine and protective gear, the new rules will also protect German companies active in the energy sector and the digital economy, he said.

As the outbreak batters the global economy, and as Germany’s is poised to contract almost 10% in the second quarter, Merkel’s government has sharpened its focus on companies critical to national interests that could fall prey to foreign takeovers. The European Commission has also issued guidelines on enacting bloc-wide rules meant to prevent foreign direct investments from threatening national security.

Without identifying potential buyers, Altmaier said authorities are already scrutinizing a concrete attempt to purchase a German company involved in “medical production,” and examining others. “There are a number of other cases that we are monitoring very closely, in which we’re determined to stop potential takeovers,” he said.

The coronavirus crisis has raised the stakes globally for deals in the medical industry. Last month German biotech company CureVac AG denied speculation that the U.S. government tried to buy the business or its technology amid an intensifying race to produce a vaccine for the disease.

Plummeting Values

As companies contend with plummeting market values -- Germany’s DAX index is down more than 20% so far this year -- Chinese firms in particular are getting ready for discount deals in Europe, exploiting the turmoil in which businesses are scrambling for cash to stay afloat.

Bankers have recently seen a spike in requests from Chinese firms and funds for proposals on targets in Europe, according to people familiar with the potential deals. Many potential acquirers are state-owned enterprises, they said.

That scenario will inevitably set up a conflict with European governments, who even before the pandemic were embroiled in a debate over the bloc’s vulnerability. That debate has been fueled by the lack of national or European champions to compete with rivals backed by the Chinese government.

Germany started adopting more protectionist measures after China’s Midea Group Co. swallowed robot maker Kuka AG in 2016. Two years later, Merkel’s cabinet blocked a Chinese bid for the first time by vetoing the potential purchase of machine-tool manufacturer Leifeld Metal Spinning AG.

Carmakers Zhejiang Geely Holding Group and BAIC Group also own large stakes in rival Daimler, in what is seen as the most prominent Chinese investment in Germany. Over the past five years, Chinese companies have announced $21.9 billion of acquisitions in Europe, according to data compiled by Bloomberg.

The government has focused its efforts on thwarting attempts to seize or gain leverage over German companies with crucial know-how for critical infrastructure and the digital economy, such as artificial intelligence and battery cell production. The current initiative, a tightening of Germany’s Foreign Trade Law, will restrict the access that bidders have to companies’ know-how while an acquisition is being reviewed.

Not everyone welcomed the tighter rules. “If we regulate flows of foreign capital too severely, we risk restricting growth and employment prospects within Germany,” said Volker Treier, head of foreign trade at the DIHK industry group.

©2020 Bloomberg L.P.