COVID-19 - Italy expands Golden Power review of foreign investments

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On April 8, 2020, in response to the COVID-19 emergency and following EU Commission guidelines issued on March 25, 2020 on the protection of European strategic assets and technologies, the Italian government issued Law Decree No. 23 of 2020 (the “Decree”), containing special measures for the protection of Italian assets. The Decree expands the strategic sectors governed by the so-called “Golden Power” law on the review of foreign investments in Italian assets.

Pursuant to Law Decree No. 21 dated March 15, 2012 (converted into law by Law No. 56 dated May 11, 2012), as amended to date (the “Golden Power Law”), the Italian government has the power to prohibit or impose restrictions/conditions to an investment by foreign persons in certain industries deemed strategic for the Republic of Italy.

On March 25, 2020, the EU Commission issued guidelines to coordinate the EU Member States’ approach to foreign direct investment screening (the “FDI Guidelines”) with the aim of protecting the EU’s critical assets and technologies from becoming controlled by foreign investors during the market disruption caused by the COVID-19 pandemic. The FDI Guidelines set forth only general principles on screening of investments applicable to all EU Member States and do not amend or replace the Golden Power Law.

On April 8, 2020, pursuant to the Decree the Italian Government amended the Golden Power Law in order to align it with the FDI Guidelines.

The Decree also expands the screening powers of the Italian Government to include new sectors and such screening powers now apply (on a temporary basis until December 31, 2020):

  • Acquisitions by EU entities: controlling interests in all sectors covered by the Decree (prior to entry into force of the Decree such screening applied to EU Entities only if the acquisition related to defence and national security sectors);
  • Acquisitions by any non-EU entity: any interest representing at least 10% of the corporate capital or otherwise entitling to at least 10% of the voting rights of the target (and any subsequent acquisition exceeding 15%, 20%, 25% and 50% thresholds), in all sectors covered by the Decree and so long as the investment value exceeds Euro 1 million.

The Italian Golden Power Regime

Scope of review

Under the Golden Power Law, the Italian government has jurisdiction to review (a) any transaction (i) in the defense and national security sectors, which may harm or constitute a material threat to the Italian government's essential interests; and (ii) in the energy, transportation, communication and high-tech sectors, which may harm or constitute a material threat to the fundamental interests of Italy relating to the security and operation of networks and systems, to the continuity of supplies and the preservation of high-tech know-how, and (b) solely to the extent that non-EU persons are involved, the execution of any agreement relating to the acquisition of assets or services relating to 5G technology infrastructure (or any 5G technology related components).

Italian government Golden Power pre-clearance is mandatory for certain common transactions, including:

  • stock or asset purchases, mergers and joint ventures in which the foreign partner is investing in Italian assets;
  • corporate transactions that may change the target company's ownership structure or purpose, or cause the winding up of the target company's business;
  • contracts or agreements with non-EU persons relating to the supply of 5G technology infrastructure, components and services.

A target company, seller or purchaser may make the filing.1 The filing is triggered with respect to acquisitions or transactions in the defense and national security sectors, if certain minimum non-controlling stakes2 are acquired. In relation to all other sectors covered by the Golden Power Law, the filing is triggered if a controlling stake is acquired by a EU entity3 or if a stake of no less than 10% is acquired by a non-EU entity.

A breach of the filing obligations can trigger monetary sanctions for the purchaser not less than 1% percent of the cumulative global turnover realized by the companies involved in the transaction (up to twice the value of the transaction), or solely with respect to 5G technology agreements, not less than 25%, up to 150%, of the value of the transaction.

The Italian government enjoys broad discretionary powers to veto a transaction or impose special conditions on its completion, including corporate governance measures (e.g. appointment of an Italian government nominee to the board of the target), organizational measures (e.g. ring fencing of the key assets from the foreign investor’s control) and more.

Golden Power review process

A Golden Power filing must be made within 10 days after certain key events (e.g. signing or adoption of the corporate resolution approving the transaction) after which the Italian government has a 45 business day review period (as may be extended, the “Review Period”), during which any voting rights attached to the acquired interests are frozen until clearance is given. Filings are not generally made available to the public, though may be accessible through a lengthy public records request procedure.

The Review Period may be extended only once, for a maximum of (i) 10 additional business days, if the Italian government requests additional information from the filing person and (ii) 20 additional business days, if the Italian government requests additional information from a third party.4

Starting from October 11, 2020 (when the EU FDI Screening Regulation will enter into force – see below), if another EU Member State or the EU Commission determines to review the transaction (independently or at the request of the Italian government), the Review Period will pause until the observations or opinion of the relevant EU Member State or the EU Commission have been delivered. However, the Italian government may complete its review and provide Golden Power clearance before the receipt of such opinion or observations, to the extent it determines that urgent action is required to ensure the protection of national security or public order.

In addition, the final decision on whether a foreign investment is authorized remains with the Italian government. While other EU Member States or the EU Commission may raise concerns, these are not binding and they cannot block or unwind the investment in question.

If the Italian government does not issue clearance, extend the Review Period, or exercise its powers to block or impose conditions before the end of the Review Period, the transaction is deemed tacitly cleared and can be implemented.

The EU FDI Screening Regulation and FDI Guidelines

The European Union has established an EU-wide mechanism of cooperation and coordination of national screening procedures for new foreign direct investments (“FDI”) pursuant to the “FDI Screening Regulation” issued in March 2019. This new regulation will come into force on October 11, 2020. The FDI Screening Regulation will not replace the existing screening procedures available in the EU Member States (including the Golden Power Law), but will complement the existing screening mechanisms and enhance their effectiveness. It is designed to help EU Member States and the EU Commission to cooperate with each other in order to assess collectively potential cross-border threats to security and public order arising from a foreign direct investment.

Further, in light of the current COVID-19 crisis and its severe implications for the EU economy, the EU Commission stepped up efforts to strengthen the protection of EU companies through interim guidelines (“FDI Guidelines”) issued on March 25, 2020.

The FDI Guidelines specifically call on EU Member States to take two actions. First, EU Member States that already have an FDI screening mechanism in place (e.g. the Golden Power Law in Italy) should make “full use already now” of their FDI screening mechanisms, and EU Member States that do not have such a screening mechanism should quickly establish them and, in the meantime, “use all other available options” to protect critical assets and industries. Second, in addition to country-specific FDI screening mechanisms, the FDI Guidelines encourage EU Member States to make use of the “free movement of capital” rules applicable to investments in the EU by non-EU entities, which permit EU Member States to restrict such transactions in furtherance of a legitimate public policy objective.5

Key Changes to the Italian Golden Power Law Introduced by the Decree

Golden Power Law: Existing sectors vs. Additional sectors

In furtherance of the FDI Guidelines and in response to the current COVID-19 crisis, the Decree expands the scope of the Golden Power Law to additional strategic sectors, which mirror the list of strategic sectors listed in the FDI Screening Regulation and expands until December 31, 2020 the scope of application of its screening powers.

These measures will provide further protection to certain Italian companies that previously did not fall within the Italian Golden Power Law and could be targeted by foreign opportunistic investors at a time when valuations reached historical lows.

The table below provides a summary of the existing sectors vs the new additional sectors6:

Sectors falling under the Golden Power Law before the Decree Sectors falling under the Golden Power Law after the Decree
Activities of strategic importance for the defence and national security Same
Networks and plants, assets and relationships of strategic importance to the energy sector

Expanded further to include, in addition:

  • any critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electrical or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
  • supply of critical inputs, including energy or raw materials
Networks and plants, assets and relationships of strategic importance to the transportation sector
Networks and plants, assets and relationships of strategic importance to the communications sector
Broadband electronic communications services based on 5G technology Same
  Critical technologies and dual-use items, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies
  Food security
  Access to sensitive information, including personal data, or the ability to control such information
  Freedom and pluralism of the media
  Financial, credit and insurance

Temporary additional key provisions – expanded scope

Up to December 31, 2020, the following new measures will apply:

  • Screening of acquisitions of controlling interests by EU Entities now applies to all sectors described above (prior to entry into force of the Decree such screening applied to EU Entities only if the acquisition related to defence and national security sectors);
  • Screening of the acquisition by any non-EU entity of any interest representing at least 10% of the corporate capital or otherwise entitling to at least 10% of the voting rights, as well as any subsequent acquisition exceeding 15%, 20%, 25% and 50%, in each case of any company operating in any of the strategic sectors illustrated above and so long as the investment value exceeds Euro 1 million.

Exercise of the golden powers

The Decree now allows the Italian government to initiate Golden Power review independently and in the absence of a filing. In such instances, the Review Period will start from the date the Italian government determines that a breach of the filing obligation has occurred.

Key Tips for Investors

In consideration of the changes introduced to the Golden Power Law, investors should exercise care in assessing whether a target falls within the scope of the Golden Power regime and must be aware of:

  • Expanded scope of transactions subject to screening on a temporary basis until December 31, 2020;
  • Longer Golden Power Review Periods;
  • Potential intervention of a third-party EU member state or the EU Commission (which may further extend the Review Period, but doesn’t have the effect of blocking the transaction);
  • The need to ensure in share purchase agreements that long stop dates and regulatory clearance closing conditions take into account the latest timelines and conditions relating to the Golden Power Rule and the FDI Screening Regulation.

1 Any purchaser of equity interests in a listed target company active in the defence and national security sector must notify the acquisition if it exceeds the threshold of 3, 5, 10, 15, 20 and 25 percent ownership in the share capital of the listed target company.
2 The threshold is at least 3% (in listed companies) and 5% (in non-listed companies).
3 A “controlling stake” is any stake in a company granting more than 50% of the voting rights or otherwise granting a number of votes (also as a result of an agreement with other shareholders) sufficient to appoint the majority of the board members and determine the strategy of the company (i.e., sufficient to exercise a “dominant influence”).
4 With respect to agreements relating to 5G technologies, the filing shall occur within 10 days after execution of the relevant 5G technology agreement, and the review term is 30 business days from filing (rather than 45 business days), which may be extended twice of additional 20 business days.
5 See also our client alert date April 1, 2020, available at:
6 The Italian government screening powers relating to the expanded sectors will be immediately effective, even though the regulation of the Italian Prime Minister specifically identifying the relevant key strategic assets has not been issued yet.

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