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Germany:

German Federal Government Enacts Tightening Of Investment Review In The Health Sector


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On 20 May 2020, the German federal government passed into law
the 15th Ordinance amending the Foreign Trade Ordinance (the
15th FTO Amendment). This “Co-rona
Amendment” focuses on the health sector. The amendment is
effective the day after its publication in the German Federal
Gazette.

In the view of Federal Minister of Economics Peter Altmaier, the
15th FTO Amendment is intended to ensure that the German federal
government is made aware of, and is able to review, critical
corporate acquisitions in the health sector. The current Corona
crisis makes clear how important medical know-how and domestic
production capacity can be in crisis scenarios in Germany and
Europe. The amendments are nonetheless not time-limited.

The Federal Ministry of Economics and Technology
(BMWi) intends to submit further proposals for FTO
amendments this summer. These proposals will supplement the
amendments to the Foreign Trade Act previously enacted by the
federal cabinet on 8 April 2020 and now in parliamentary
proceedings (see our
Client Information
in this regard).

Key Facts

  • Expansion of notification requirements to cover investments in
    the fields of pharmaceuticals, medical devices, personal protective
    equipment and in vitro diagnostics

  • Specification of prohibition criteria

  • Clarification on investment review for asset deals

  • Further details on notification requirements

We have summarized the most important changes in more detail
below.

1. Expansion of notification requirements

The 15th FTO Amendment expands the notification requirements for
(direct or indirect) acquisitions of at least 10% of the voting
rights in German companies by acquirers from outside the EU and
EFTA to include target companies that

  • develop, produce, market, or hold a license under
    pharmaceuticals law for pharmaceuticals as defined
    in § 2 para. 1 of the German Medicines Act that are essential
    to ensure the provision of health care to the population, including
    such pharmaceuticals’ precursors and active ingredients;

  • develop or produce medical devices as defined
    under German medical device law that are intended for the
    diagnosis, prevention, monitoring, prediction, prognosis, treatment
    or relief of life-threatening and highly contagious infectious
    diseases;

  • develop or produce in vitro diagnostics as
    defined under German medical device law that serve to provide
    information on physiological or pathological processes or
    conditions or to indicate or monitor therapeutic measures in
    connection with life-threatening and highly contagious infectious
    diseases;

  • develop or produce personal protective
    equipment
    as defined in Article 3 no. 1 of Regulation (EU)
    2016/425 of the European Parliament and of the Council of 9 March
    2016; and

  • provide services that are necessary to ensure
    the uninterrupted functioning of state communication
    infrastructures
    as defined in § 2 para. 1 sentences 1
    and 2 of the Digital Radio of Security Authorities and
    Organisations (BDBOS) Law.

In contrast to the Ministerial Draft of the BMWi (see our
related
Client Information
), cer-tain components, preliminary products,
manufacturing facilities, manufacturing technol-ogies, and the
extraction and processing of critical commodities are not
covered.

The BMWi must be notified promptly after a binding agreement is
entered into regarding a notifiable acquisition. The proposed
amendment of the Foreign Trade Act also provides for the
introduction of an implementation prohibition for notifiable
acquisitions. The legal transaction serving to implement the
acquisition will only become effective following approval by the
BMWi.

2. Specification of prohibition criteria

When reviewing whether an acquisition endangers public order and
security, it is to be considered in particular whether:

  • the acquirer is directly or indirectly controlled by the
    government (including government bodies and armed forces of a third
    country), in particular by virtue of its ownership structure or
    through the contribution of not insignificant financial
    resources;

  • the acquirer has already been involved in activities that have
    adversely affected the public order or security of the Federal
    Republic of Germany or another member state of the European Union;
    or

  • a substantial risk exists that the acquirer or persons acting
    on the acquirer’s behalf have been or are involved in
    activities that would constitute certain criminal offences or
    administrative offences in Germany (including money laundering,
    fraud, bribery or corruption, breach of foreign trade regulations,
    etc.).

This specification will apply for both cross-sector and
sector-specific investment review.

The proposed amendment of the Foreign Trade Act also provides
for a reduction in the prohibition criteria. An anticipated
impairment of public order or security is to be sufficient for
prohibition.

3. Further amendments

The 15th FTO Amendment clarifies that an asset deal is subject
to investment review. This includes the acquisition of

  • a discrete operating division of a domestic company or

  • all essential equipment of a domestic company or of a discrete
    operating division of a domestic company that are necessary to
    maintain the operations of the company or of a discrete operating
    division.

The 15th FTO Amendment also clarifies that the direct acquirer
is generally subject to the notification obligation, even if such
acquirer is resident in the EU. In such a case, the non-EU indirect
acquirer is nonetheless permitted to submit the notification as
well. The notification must specify the acquisition, the acquirer
and the domestic company to be acquired and must include a summary
presentation of the business areas of the acquirer and of the
domestic company to be acquired.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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