Matheson flags new layer of FDI screening
Lawyers at Matheson have highlighted an EU proposal that would introduce a new layer of screening for certain M&A (merger and acquisition) deals involving entities based outside the union.
The firm’s lawyers say that the proposed sector-specific review regime would operate separately from, and in addition to, the existing EU and Irish FDI (foreign direct investment) screening process.
The proposal is part of a proposal for an Industrial Accelerator Act published by the European Commission earlier this month.
The act aims to strengthen industrial capacity and decarbonisation in strategic sectors across Europe.
‘New and separate process’
In a note on the firm’s website, the Matheson lawyers point out that the act proposes tighter controls on FDI in “emerging strategic manufacturing sectors”, such as battery technologies, electric vehicles, solar PV technologies, and the extraction, processing, and recycling of critical raw materials.
“While the act would complement the EU’s existing FDI screening mechanism, which focuses primarily on security and public order concerns, it proposes a new and separate review process, including different notification procedures and enforcement systems,” the firm states.
Under the plan, investments exceeding €100 million in emerging strategic sectors will require approval from designated national investment authorities, where more than 40% of the global manufacturing capacity is controlled by a third country of which the investor is a national or undertaking.
Conditions
For approval to be granted, investments must fulfil at least four of six conditions:
- The foreign investor may not hold more than 49% of ownership interests or control in the EU target or asset,
- The foreign investor may not hold more than 49% of ownership interests or control over a joint venture with EU entities,
- Foreign investors must share their intellectual property and know-how for the benefit of the EU target or asset,
- The foreign investor must commit to R&D (research and development) spending in the EU of at least 1% of the EU target or asset’s gross annual revenue, in proportion to the foreign investor’s share of control,
- At least 50% of the workforce employed in the context of the investment should be made up of EU workers across all categories, and
- The foreign investor must publish a strategy to enhance EU value chains and endeavour to source at least 30% of inputs from the EU for its products sold on the EU market.
The European Commission may decide to review certain cases of FDI on the request of a national investment authority or on its own initiative, where the FDI is capable of significantly affecting added-value creation in the EU, or where the FDI’s value is above €1 billion.
Matheson notes that this is a departure from the commission’s primarily advisory role under EU’s FDI Screening Regulation.
There are exemptions for some deals – including those covered by free-trade or economic-partnership agreements and investments targeted at providing services.
Extended timelines
The firm’s lawyers say that the proposal is likely to extend the timelines for deals covered by the act, particularly in circumstances where the European Commission takes an active role in the screening process.
“Proposed transactions captured by the screening mechanism are also likely to face significant difficulty in obtaining clearance in comparison to the standard FDI screening and merger-control regimes,” they add.
Matheson concludes that, as the act covers only deals involving investors originating from a country that accounts for at least 40% of global production of the relevant technology or input, it will “overwhelmingly affect investment from certain countries only”.
The act will now go to the European Parliament and EU Council for discussion and potential amendment.