“A breach of the filing obligations under the Golden Power Law can lead the purchaser to be held liable for a general monetary sanction”
The Italian government, led by the President of the Council of Ministries, together with any other relevant ministry, 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. To the extent that non-EU persons are involved, the review of the Italian government also applies to any agreement concerning the acquisition of assets or services relating to 5G technology infrastructures.
Italian law provisions on the so-called "golden power" review were first adopted in March 2012 and were subsequently amended and supplemented by several law decrees.
In response to the COVID-19 pandemic 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, during 2020 the Golden Power Law was further amended in order to protect Italian strategic assets against potential speculative transactions carried out by foreign investors. Pursuant to the 2020 Amendment, the Italian government significantly expanded the scope of application of the Golden Power Law.
In particular, the Golden Power Law was expanded by the 2020 amendment to cover a broad range of new strategic sectors, which now include the following "New Strategic Sectors":
- Critical infrastructures in the energy, transportation and communication sectors
- Technology, including artificial intelligence, robotics, semi-conductors, cybersecurity, nanotechnologies, biotechnologies and logistics
- Dual-use items, including artificial intelligence, robotics and biotech
- Supply of critical inputs, including raw materials, steel industry, agri-food sector and security
- Treatment, storage, access, control of sensitive data and information, including personal data
- Electoral infrastructure platforms
- Non-military aerospace infrastructure and technology
- Freedom and pluralism of media
- The financial sector, including credit, insurance and financial markets
In December 2020, the Italian government issued two decrees, the "Implementing Decrees," that set forth the exact list of relevant strategic assets and businesses falling within the New Strategic Sectors, as well as the updated list of strategic assets and businesses falling within the energy, transport and communication sectors.
The Implementing Decrees clarified that intra-group reorganizations and transactions carried out by and between Italian companies holding strategic assets in any of the sectors covered by the Golden Power Law are subject to filing obligations, but the application of the special veto powers by the Italian government is excluded in relation to such transactions.
“Following the adoption of the 2020 Amendment on the back of the COVID-19 pandemic, the number of filings has significantly increased”
FILING OBLIGATIONS AND SANCTIONS
If a transaction falls within the scope of the Golden Power Law, filing is mandatory, and the notification must be made by the target 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.
The Italian government has the power to trigger the Golden Power Law review on its own motion and regardless of a filing having been made by a party involved in the transaction.
A breach of the filing obligations under the Golden Power Law can lead the purchaser to be held liable for a general monetary sanction equal to no 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. When transactions involve 5G technology agreements, sanctions can amount to no less than 25 percent and up to 150 percent of the value of the transaction.
TYPES OF DEALS REVIEWED
Under the Golden Power Law, the Italian government has jurisdiction to review any transaction in the defense and national security sectors that 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 that 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 or to the preservation of high-tech know-how.
The government may also review the execution of any agreement with any non-EU persons relating to the acquisition of assets or services relating to 5G technology infrastructure, or any 5G technology- related components.
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
- Transactions or corporate actions that may have the effect of changing the target company's ownership structure or purpose
- Transactions that can cause a transfer of headquarters outside of the Italian territory
- Transactions triggering a 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 (each a "Relevant Transaction") 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 any other strategic sector (including any of the New Strategic Sectors), a filing will be required in connection with a Relevant Transaction relating to energy, transportation and communication sector assets, and up to December 31, 2021, in connection with assets falling within the New Strategic Sectors, in both cases resulting in a change of ownership, control or availability of such assets.
Until December 31, 2021, a filing will also be required for a Relevant Transaction by EU/EEA entities involving controlling interests in companies operating in any of the strategic sectors covered by the Golden Power Law.
Filing is also required in all sectors covered by the Golden Power Law (including the New Strategic Sectors) for Relevant Transactions carried out by any non-EU/EEA entity of any interest representing at least 10 percent of the corporate capital or otherwise entitling to cast at least 10 percent of the voting rights of the target company, so long as the value of the Relevant Transaction is equal to or exceeds €1 million (and any subsequent acquisition exceeds 15 percent, 20 percent, 25 percent and 50 percent of the target company's capital),
From January 1, 2022, subject to any further extension of the temporary regime, 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 strategic sector, including the New Strategic Sectors.
SCOPE OF THE GOLDEN POWER REVIEW
Based on the publicly known precedents of reviews completed since the adoption of the Italian Golden Power Law, the Italian government has applied its special powers mainly in relation to the following types of transactions:
- Transactions leading to changes in governance and internal policies that can harm Italian 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
The Italian government enjoys broad powers to impose restrictions, including the power to veto the transaction 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 (for example, the board must include at least one director appointed by the Italian government)
- Safety measures, such as the approval of safety contingency plans to monitor strategic assets and operations (for example, appointment of a chief safety officer designated by the Italian government)
- Monitoring measures, such as the establishment of independent committees within the target company 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 company
TRENDS IN THE REVIEW PROCESS
On the basis of public documentation made available by the Italian government and from White & Case's direct experience in assisting companies in connection with Golden Power Law reviews, the number of reviews activated and completed before the Italian government has progressively increased. Following the adoption of the 2020 Amendment on the back of the COVID-19 pandemic, the number of filings has significantly increased, from approximately 83 known filings in 2019 to 341 filings made in 2020.
Among these, during the year 2020, the Italian government exercised its special powers only in relation to a minority of the publicly known review procedures, mainly in relation to defense and national security, communications and 5G network technology, and in relation to certain New Strategic Sectors, such as technology (biotechnology and cybersecurity), financial and credit sectors. In only one known instance has the Italian government vetoed the transaction.
REVIEW PROCESS TIMELINE
The filing under the Golden Power Law must occur within ten days after the execution of the Relevant Transaction (for example, in an acquisition, typically after signing or in a capital increase transaction, following the adoption of the relevant corporate resolution, as applicable). Upon receipt of the filing, a standstill period of 45 business days (30 business days for agreements relating to 5G technologies) begins to run. During this period, the Italian government carries out the review of the Relevant Transaction, and any voting rights attached to the acquired interests of the target company are frozen until the date on which the Italian government decides whether to exercise its powers.
If the government requests additional information from the filing person, the 45-business-day term may be suspended by the Italian government only once, and for a maximum period of 10 additional business days, to permit the collection of additional information from 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 of 20 additional business days per each extension, if the case is particularly complex.
EU Regulation 452/2019 sets forth 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 the case of the EU Commission, an opinion. Starting from October 11, 2020, if another EU Member State or the EU Commission decides to review a Relevant 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. This may take up to 35 calendar days after receipt of the filing; the period can be extended further due to the request for additional information.
While other EU Member States or the EU Commission may raise concerns, such concerns are not binding and they cannot block or unwind the investment in question. The final decision on whether a foreign investment is authorized remains exclusively with the Italian government.
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, the Relevant Transaction is deemed tacitly cleared and can be legitimately implemented.
- 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 filing pursuant to the Golden Power Law 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, the Italian government might veto, or impose certain measures or conditions to, the completion of the transaction. Early contacts on an informal basis with the competent Italian authorities should be initiated in order to efficiently plan the timetable and structure of the transaction
- Given the very short notification term (ten days from the adoption of a resolution/signing of a binding agreement), tight cooperation between the parties and their legal counsel is fundamental to collect all relevant information well in advance of a signing and subsequent filing
- Since the adoption of the Golden Power Law, the Italian government has generally exercised its powers only to apply specific measures or conditions to the Relevant Transactions scrutinized by it, and only a very few known Relevant Transactions have been vetoed due to the nature of the business
- The vast majority of publicly known notified deals have been approved, or the Italian government has declared that it did not intend to exercise its special powers
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2021 White & Case LLP