In an unprecedented double-strike, the German government recently blocked two transactions pertaining to Chinese investments in German semiconductor facilities. Just two weeks before, the cabinet had already intervened regarding Chinese COSCO Shipping Ports Limited’s (“CSPL”) planned acquisition of a 35% stake in a container terminal in the port of Hamburg by allowing only 24.9%, which was referred to as a partial prohibition.
These recent developments follow a number of revisions and expansions of the German foreign direct investment (FDI) rules since 2020 (including aligning the scope of review more closely with the EU Screening Regulation which resulted in an unprecedented increase of transactions subject to German FDI screening). This is in line with the international trend of a more prudential approach to inbound and even outbound foreign direct investments in Europe including the UK and in the US.
Increased scrutiny by the German Federal Ministry for Economic Affairs and Climate Action (“BMWK”) in 2022
Following a number of revisions of the German foreign direct investment rules (c.f. our Client Alerts here and here), the German government recently prohibited the sale of two companies active in the semiconductor industry to Chinese investors.
The first case concerned Elmos Semiconductor SE (“Elmos”), based in Dortmund, which develops, produces and markets semiconductors mainly for use in the automotive industry. The BMWK stated that the planned investment by Swedish Silex Microsystems, a subsidiary of Chinese Sai Microelectronics, in Elmos would endanger Germany’s public order and security. The BMWK argued that any mitigation measures, such as an approval of the acquisition with conditions, were not suitable to remedy these concerns.
The second recent case was handled strictly confidentially by the BMWK; according to press information, it concerned a Chinese acquisition of the semiconductor company ERS Electronic GmbH in Bavaria, which pioneered the thermal wafer testing and invented a technology for cooling without liquid.
These transactions are only the last two interventions in a series of similar cases in 2022:
- In October, the German government approved the investment by the Chinese company CSPL in HHLA Container Terminal Tollerort GmbH (“CTT”) only to a significantly lower degree than planned by the parties. CTT operates a container terminal in the port of Hamburg, Germany’s largest port. According to press statements, the Federal Chancellery and several ministries initially had different views on the proposed acquisition. At the end and shortly before Chancellor Scholz’s first visit as Chancellor to China, the German government cleared the transaction. However, it only allowed CSPL to acquire a shareholding of 24.9 % instead of the originally proposed 35 %. In addition, the BMWK prohibited CSPL to acquire atypical means of further influence on CTT that would go beyond the typical influence of a 24.9 % shareholder to ensure that CSPL will not have influence on any strategic issues.
- In May, BMWK prohibited the acquisition of Heyer, a producer of respirator products, by the Chinese investor Aeonmed, a step which was taken, according to BMWK, in view of the COVID19-pandemic to protect the availability of critical healthcare products and know-how.
- In January, the BMWK failed to clear the public takeover of Munich-based wafer manufacturer Siltronic AG by the Taiwanese competitor GlobalWafers within 13 months after filing, and thereby before the “long stop date” of the public takeover offer. As a consequence, the acquisition failed. The BMWK’s failure to clear the transaction within such a long time period was largely construed as an alternative way to block the acquisition.
The above series of interventions shows that Germany is exercising more intense scrutiny on foreign investments in sensitive industries and these investments are getting increasingly politicized, including quite obvious disagreements between different branches of the German government that have led to U-turns during the proceedings, moving from an envisaged clearance subject to mitigation measures to effective prohibitions. This particularly applies to Chinese investors but also impacts investors from other regions. At the same time, we are not experiencing the same scrutiny on transactions in industries which are not or less sensitive even if proposed by Chinese investors.