1. National and EU Background
The new Italian golden power legislation (namely, the Law Decree n. 21/2012) is eight years old and grants the Italian Government with veto and prescription rights over investments and agreements in strategic businesses.
From the beginning this law has protected the defence & national security sector and networks, plants, assets and relationships deemed strategic for the national interest in the fields of energy, transportation and communications. Since 2017 it has been repeatedly amended to broaden its scope by extending it to “highly intensive technology” services, assets and infrastructures and 5G technologies.
Due to recent turmoil on stock exchange markets related to the Covid-19 emergency, the Italian Government has adopted additional temporary protective measures against hostile takeovers, by widening the scope of the “golden power” legislation and applying certain provisions also to EU investors.
The announced reform follows the recommendation to Member States delivered on March 25, 2020 by the EU Commission, to make full use of national FDI screening mechanisms to tackle the risks of predatory acquisition in European critical sectors, primarily but not limited to health infrastructures, supply of critical inputs, and the related industries.
Foreign investors may increasingly need to assess whether their investments in the EU Countries raise security or public order concerns and, in such a case, consider their notification strategies in the relevant Countries.
2. Relevant Provisions under the Ordinary Regime
The Italian Government’s golden powers apply to the following sectors/transactions:
i) Sector: strategic assets in the defense & national security sector, as identified in the Governmental Decree n. 108 of June 6, 2014
Transactions: acquisitions of stakes and controlling participations; certain extraordinary corporate resolutions, deeds and transactions
ii) Sector: acquisition (in any manner) of services and supplies for the project, execution, management and maintenance of 5G broadband electronic TLC networks based on 5G technology
Transactions: agreements with extra EU counterparties
iii) Sector: networks, plants, assets and relationships deemed strategic for the national interest in the fields of energy, transportation and communications, as identified in the Presidential Decree n. 85 of March 25, 2014
Transactions: certain extraordinary corporate resolutions, deeds and transactions carried out by the target company and triggering a transfer or change in control or availability of the assets; acquisitions of controlling stakes and participations by extra EU investors
iv) Sector: those additional assets to be identified by Governmental Decree within the sectors provided for in article 4, paragraph 1 of the EU Regulation 452/20192 (the implementing regulations have not been issued yet)
Transactions: certain extraordinary corporate resolutions, deeds and transactions carried out by the target company and triggering a transfer or change in control or availability of the assets in favor of extra EU investors; acquisitions of controlling stakes and participations by extra EU investors.
Sectors provided for by article 4, paragraph 1 of the EU Regulation n. 452/2019 are:
a. critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
b.critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) 428/2009, including artificial intelligence, robotics, semiconductors, cyber security, aerospace, defense, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies;
c. supply of critical inputs, including energy or raw materials, as well as food security;
d.access to sensitive information, including personal data, or the ability to control such information; or
e. the freedom and pluralism of the media.
As to the assets in the sectors provided for under this Paragraph iv), pending the adoption of the implementing regulations, the notification duty (under the ordinary regime) would have applied to investments in the sectors provided for by letters a) and b) only, but de facto it has not yet been enforced.
The scope of the provision of law, and particularly Paragraphs ii) and iv), is the result of a progressive enlargement intended to cope with the new issues raised by technological innovation and related concerns about cyber security and national security.
The Italian Government enjoys the power to block or impose restrictions (such as control, monitoring or other management, organizational and technical measures) in relation to the transactions to be notified.
The Italian Government can exercise such golden powers in case of serious threatened situations prejudicial to the national security and public order interests on defence, security, networks and plants and supply continuity.
3. Temporary Provisions under the Covid-19 Emergency Regime
The notification duty and possible enforcement of the golden powers have been temporarily amended, by the Government by the Law Decree n. 23/2020 approved on April 8, 2020 (the so called Decreto Liquidità).
The changes concern:
a) the immediate application of the notification duty to the sectors provided for in article 4, paragraph 1 of the EU Regulation n. 452/2019;
b) the partial extension to EU investors of the notification duty;
c) the provision of minority stake thresholds triggering the notification duty;
d) the granting of new powers to the Government to enforce the golden power rules even in lack of notification by the relevant parties.
In particular, from now on and until December 31, 2020:
- as to the assets provided for in Paragraph iii) (networks, plants, assets and relationships deemed strategic for the national interest in the fields of energy, transportation and communications), the notification duty has been extended to any foreign EU investors as to the acquisition of controlling stakes and participations (and not only by extra EU investors), to any acquisition by any extra EU investors of stakes and participations exceeding 10% of the share capital and requiring an investment of more than Euro 1 million, and to any further acquisition triggering the 15%, 20%, 25% and 50% thresholds.
- as to the assets provided for in Paragraph vi) (to be identified in the sectors provided for article 4, paragraph 1 of the EU Regulation n. 452/2019):
These temporary rules, to the extent they refer to the financial, banking and insurance sectors, shall not be considered a derogation to the respective regulatory provisions but shall apply in addition.
These temporary rules apply to all companies, either listed or not listed.
On the other side, the ordinary regime in force to date continues to apply to the sectors of national security and defense and broadband electronic communications services based on 5G technology.
4. Additional Governmental Powers
The Decreto Liquidità has granted, on permanent basis, the Italian Government with the possibility to commence the proceedings for the exercise of the golden powers even in lack of notification.
In this case, the term for completion of the proceeding runs from the end of the investigation activities aimed at assessing whether there has been a breach of the notification obligation.
Further, the inter-ministerial Group for coordination is granted with the power to request public administrations, public or private entities, businesses and any other third party to provide information and submit documents.
These new powers supplement the ordinary sanctioning mechanisms, hence ensuring a more effective protection of national interests.
5. Screening Proceeding Time Limits
The Decreto Liquidità prolonged to May 15, 2020 the special suspension (previously set forth by the Law Decree n. 18 of March 17, 2020) in relation to the calculation of time limits for administrative proceedings pending on or otherwise commenced after February 23, 2020.
The period between February 23, 2020 and May 15, 2020 shall not be taken into account; for proceedings commenced after February 23, 2020, the first day shall be deemed to run from May 16, 2020.
This means that the time limits of the screening procedures set out in the golden power legislation (both those initiated before 23 February 2020 and still pending, and those notified after such date) shall be considered temporarily suspended in accordance with the above.
As a consequence, by suspending the time limits applicable to the screening proceedings, functional to the possible exercise of golden powers, and those applicable to the decision by the Government by way of deemed consent, all transactions subject to the golden power legislation shall be prolonged accordingly.
6. Entry into force and duration
The Decreto Liquidità entered into force on April 9, 2020 and shall be converted into law by the Parliament within sixty days thereof; upon conversion it may be subject to changes and integrations.
The Decreto Liquidità specifies that the relevant temporarily provisions will apply to all cases in respect of which the notification duty is triggered during the period of validity of the provision at hand producing, in any case, stable effects over the time also once the relevant application term has expired.
The new rules on golden powers enacted in relation to the Covid-19 emergency are intended to apply to a broader number of transactions and sectors that have not been considered so far.
They require investors to conduct a deeper analysis of the relevant business to verify whether the transaction falls within the scope of the golden power legislation. This is true indeed for the interpretation of the assets which may fall within the scope of article 4, paragraph 1 of the EU Regulation n. 452/2019 including also the financial, banking and insurance sectors.
Nevertheless, such new rules do not prevent foreign investments but (temporarily) entails an higher degree of disclosure of the acquisition project and a longer completion phase.
Notwithstanding the progressive enlargement of the scope of the Italian golden power legislation and increasing number of transactions subject to screening procedures in the past years, so far a relative limited number of transactions have been considered critical and few prescriptions/conditions have been imposed, and only in one case the Italian Government exercised the veto right.