The Italian government, which is led by the President of the Chamber of Ministries, together with any relevant ministry (such as the Defense Ministry, the Ministry of Transport and the Ministry of Communications), reviews any transaction relating to Italian companies that carry out "strategic activities" in the defense and national security sector or hold "assets with strategic relevance" in certain specific sectors deemed strategic for the Republic of Italy. And to the extent that non-EU persons are involved, any agreement relating to the acquisition of assets or services relating to 5G technology infrastructures are also reviewed.
To date, the Italian government has generally exercised its powers only to apply specific measures or conditions to the transactions, and only one known transaction has been vetoed.
Italian law provisions on the so-called "golden power" procedure were adopted in March 2012 and were amended and supplemented by several law decrees, adopted also during 2020 in response to the COVID-19 pandemic (the Golden Power Law) and in furtherance of the EU Guidelines on the screening of foreign direct investments (FDI) in Europe issued by the EU Commission on March 25, 2020. The rules aim to protect national security, defense and public interest, as well as Italian companies' technology and technical, industrial and commercial know-how.
In particular, in response to COVID-19 and in order to protect Italian strategic assets against potential predatory speculative transactions by foreign investors, which may take advantage of depressed valuations caused by the negative impact of the pandemic, in March 2020 the Italian government significantly expanded the scope of application of the Golden Power Law.
The government introduced a number of additional broadly defined sectors deemed of strategic importance for the purposes of the Golden Power Law, including critical infrastructure, such as water and health, energy, transport and communication in general (and no longer limited to grid/network infrastructure); critical technologies and dual-use items (including artificial intelligence, robotics and biotech); supply of critical inputs; agri-food business; steel business (the expansion into the agri-food and steel business is applicable only on a temporary basis until December 31, 2020); access to sensitive information (including personal data); media; and financial, credit and insurance (the "New Strategic Sectors").
The government also expanded the scope of relevant transactions subject to screening, and introduced the power to trigger the Golden Power review independently and in the absence of a filing (an "ex officio review"). The Italian government is in the process of issuing a prime minister decree that will further detail the relevant strategic assets and businesses falling within the New Strategic Sectors. Pending approval of this prime minister decree, the scope of application will be rather broad.
FILING OBLIGATION AND CONSEQUENCES
Filing is mandatory, and the notification must be made by the company or by the seller/purchaser in relation to any relevant transaction or resolutions adopted by the target company, and any acquisition of interests in a target company by a foreign investor, to the extent that the target company exercises any strategic activity in the defense and national security sector, or holds any strategic asset in any other sector covered by the Golden Power Law, in each case to the extent that certain requirements and thresholds are met. The filing is also mandatory (by the relevant company) in connection with the execution of any agreement regarding any acquisition of assets or services pertaining to 5G network technology from any non-EU person.
Breach of the notification obligation can lead the purchaser to be held liable for a general monetary sanction equal to an amount of not less than 1 percent of the cumulative turnover realized by the companies involved in the transaction and up to twice the value of the transaction, or, solely with respect to 5G technology agreements, of not less than 25 percent up to 150 percent of the value of the transaction.
TYPES OF DEALS REVIEWED
The Italian national rules specify the industries and sectors with a national interest and the need to be protected from predatory acquisitions by foreign investors. In particular, the Italian government has jurisdiction to review any transaction in the defense and national security sectors, which may harm or constitute a material threat to the Italian government's essential interests in the defense and national security of Italy, and in any other strategic sector under the Golden Power Law, 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 to the preservation of high-tech know-how.
The government may also review the execution of any agreement with any non-EU person relating to the acquisition of assets or services relating to 5G technology infrastructure (or any 5G technology- related components). In this context, the types of transactions that the Italian government can review are various in nature and include deals structured as stock or asset purchases, mergers, and joint ventures in which the foreign partner is investing in an Italian business, as well as transactions or corporate actions that may have the effect of changing the target company's ownership structure or purpose, transfer of headquarters outside of the Italian territory or winding up of the target company's business.
For companies in the defense and national security sectors, a filing will be required in connection with any extraordinary resolution or corporate transaction (including asset sale, merger, demerger, transfer of headquarters outside of the Italian territory, changes to the corporate purpose) or any acquisition by a person other than the Italian State or any Italian public or publicly controlled entity of an equity interest exceeding the thresholds of 3, 5, 10, 15, 20, 25 and 50 percent ownership in the share capital of the target company by both EU/EEA and non-EU/EEA entities.
For companies in the other strategic sectors (including the New Strategic Sectors), a filing will be required in connection with transactions or resolutions adopted by a target company relating to energy, transport, communication and high-tech sector assets, and up to December 31, 2020, assets falling within the New Strategic Sectors, in both cases resulting in a change of ownership, control or availability of such assets. Up to December 31, 2020, filing will also be required for acquisitions by EU/EEA entities of controlling interests in companies operating in any of the strategic sectors covered by the Golden Power Law prior to entry into force of the post-COVID-19 measures, and such screening will be applied to EU/EEA entities only if the acquisition is related to defense and national security sectors, or any asset sale transaction (other than the acquisition of shareholding interests) in the energy, transport and communications sectors).
Filing is also required for acquisitions by any non-EU/EEA entity of any interest representing at least 10 percent of the corporate capital or otherwise entitling to at least 10 percent of the voting rights of the target, so long as the investment value is equal to or exceeds €1 million (and any subsequent acquisition exceeding 15 percent, 20 percent, 25 percent and 50 percent thresholds), in all sectors covered by the Golden Power Law, including the New Strategic Sectors prior to entry into force of the post-COVID-19 measures—such screening applied only to acquisitions of a controlling interest by any non-EU/EEA entities.
From January 1, 2021, non-EU/EEA investors will continue to be subject to the obligation to notify the acquisition of a controlling interest in companies operating in any such strategic sector, including the New Strategic Sectors until further detailed in the prime minister decree (currently in the process of being approved) that will identify the relevant strategic assets included in the New Strategic Sectors.
SCOPE OF THE REVIEW
Based on the publicly known golden power reviews completed since the adoption of the Italian Golden Power Law, the Italian government mainly focused its attention on transactions leading to changes in governance and internal policies that could be capable of harming national interests; transfer of headquarters outside of the Italian territory and total or partial delocalization of the manufacturing and/ or research and development activities; transfer of intellectual property rights and/or know-how outside of Italy and for the benefit of foreign investors; and maintenance of employment levels, mainly in relation to companies operating in the infrastructure (energy, transportation and TLCs) and high-tech sectors.
The Italian government enjoys broad power to impose restrictions (such as the power to veto the resolutions or impose special conditions); however, the main measures and special conditions that have so far been imposed by the Italian government have included:
- Control measures, in particular with reference to corporate governance and composition of the management bodies of the target companies
- Safety measures, such as the approval of safety contingency plans to monitor strategic assets and operations as well as the appointment of a Chief Safety Officer approved by the Italian government
- Monitoring measures, such as the establishment of independent committees tasked with the duty to monitor the target's compliance with the above measures imposed by the Italian government
- Other management, organizational and technical measures aimed at preserving the confidentiality of information and the technological know-how of the target
TRENDS IN THE REVIEW PROCESS
On the basis of public documentation made available by the Italian government, as well as of White & Case's direct experience in assisting companies with golden power reviews, since the adoption of the Golden Power Law a number of golden power reviews have been activated and completed before the Italian government.
Among these, the Italian government exercised its special powers only in relation to 26 known golden power procedures, in relation to the sectors of defense and national security, transport, communications and 5G networks technology, as well as in relation to the following New Strategic Sectors: biotechnology, financial and credit.
HOW FOREIGN INVESTORS CAN PROTECT THEMSELVES
Foreign investors willing to enter into a transaction in relation to any Italian company operating in the defense or national security sector or holding assets in any of the strategic sectors (including the New Strategic Sectors) or operating in the 5G technology sector should carefully evaluate the possibility that a golden power filing is required and should carry out the relevant analysis before entering into any transaction.
It is crucial for foreign investors to understand and consider the risk that, in the event that a transaction falls within the scope of the Golden Power Law, it may be possible that the Italian government will veto or impose certain measures or conditions to the completion of the transaction. Early contacts on an informal basis with the competent authorities should be initiated in order to efficiently plan the timetable and structure of the transaction.
REVIEW PROCESS TIMELINE
The filing must occur within 10 days after the acquisition (typically after signing) or adoption of the relevant resolution, as applicable. Upon receipt of the filing (to the extent complete), a standstill period of 45 business days (30 business days for agreements relating to 5G technologies) begins during which the Italian government carries out the review of the envisaged investment or resolution, and any voting rights attached to the acquired interests are frozen until the date on which the Italian government decides whether to exercise its powers.
In the event that the Italian government requests additional information, the 45-business-day term may be suspended by the Italian government only once and for a maximum period of ten additional business days if the Italian government requests additional information to the filing person, and 20 additional business days if the government requests additional information from a third party. With respect to agreements relating to 5G technologies, the review term is 30 business days and may be extended twice for a maximum period of 20 additional business days per each extension, if the case is particularly complex. In addition, in line with the regime applicable to the other sectors, the review term (as extended, if applicable) may be suspended only once and for a maximum period of ten additional business days if the Italian government requests additional information from the filing person, and 20 additional business days if the Italian government requests additional information from a third party.
The EU has issued EU Regulation 452/2019 establishing a framework for the screening of foreign direct investments in the European Union, pursuant to which each Member State carrying out an FDI review process would need to notify the EU Commission and the other Member States so that they can submit any observation or comment or, in case of the EU Commission, an opinion. Starting from October 11, 2020 (when the EU Regulation entered into force), if another EU Member State or the EU Commission decides to review a transaction (independently or at the request of the Italian government), the standstill period will pause until the observations or opinion of the relevant EU Member State or the EU Commission have been delivered, which may take up to 35 calendar days from receipt of the notification, unless further extended due to the request for additional information.
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 or suspend the review period, or exercise its powers to block or impose conditions before the end of the standstill period (as possibly extended), the transaction or the resolution or the agreement is deemed tacitly cleared and can be legitimately implemented.
The majority of publicly known notified deals have been approved:
- Since the adoption of the Golden Power Law (2012), to date the Italian government has generally exercised its powers only to apply specific measures or conditions to the transactions, and only one known transaction has been vetoed due to the nature of the business comprising activities in the defense and national security sector that were considered strategic to the national interest
- The review process by the Italian government can last up to a maximum of 75 business days from the filing (60 to 100 business days for 5G technology transactions, depending on the complexity), subject also to any pending observations or opinion of the relevant EU Member State or the EU Commission, as applicable
- The notification obligation applies to acquisitions of stakes in, or asset transactions or other extraordinary corporate transactions relating to, Italian companies carrying out "strategic activities" in the defense and national security sector or that hold "assets with strategic relevance" in a broad spectrum of strategic sectors, identified by the Italian government, as recently expanded in response to COVID-19 (including energy, transport, communications, health, finance, insurance, food security, biotech, nanotechnologies and AI, and other tech sectors), as well as to agreements relating to 5G, to the extent entered into with non-EU persons
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2020 White & Case LLP