• The European Commission proposes a revised EU FDI Screening Regulation
• EU takes time to ready Outbound Investment Control Toolkit
• German FDI reviews dropped in 2023, but FDI review activity follows the trends of prior years
• Italian FDI reviews in 2023 remained consistently high, despite the end of the extraordinary provisions enacted in connection with the Covid-19 outbreak
• UK: NSIA decisions, Telegraph Media Group public interest review, and new legislation prohibiting foreign state ownership of newspapers
• In the U.S., updates to the Critical and Emerging Technologies list signal refinement of focus for CFIUS.

Proposal for a revised EU FDI Screening Regulation

The European Commission has recently adopted five initiatives as part of the European Economic Security Strategy unveiled in June 2023. The initiatives are aimed at bolstering the EU’s economic security interests. Their main focus is a proposal for a new EU FDI Screening Regulation, which remains subject to adoption by the European Parliament and the Council, and as proposed would comprise a complete overhaul of the existing EU FDI framework. The 10 things you need to know about the proposal are:

1. All EU Member States would be required to adopt and maintain FDI screening;
2. Investments in the EU made by investors registered in the EU but controlled by non-EU persons would fall within the scope of the EU screening cooperation mechanism;
3. The EU screening cooperation mechanism would apply to ‘greenfield’ investments if they are reportable at the EU Member State level;
4. All EU Member States would need to screen a minimum set of activities specified in Annex I and Annex II, but would be free to review other activities as well;
5. The EU screening cooperation mechanism would be reinforced: notifying EU Member States would need to take “utmost consideration” of comments/opinion from other EU Member States and the EC and justify any divergence from those comments/opinion;
6. The EC and Member States would be able to initiate ex-officio reviews of deals not notified to the EU screening cooperation mechanism for up to 15 months post-closing;
7. The EU screening cooperation mechanism would likely take 2-3 months in practice, potentially extending the current duration of national FDI review procedures;
8. The substantive analysis of transactions would focus on a series of common factors related to the investment and the investor;
9. EU Member States would have to grant investors certain due process guarantees – notably an opportunity to comment ahead of a prohibition or conditional clearance decision;
10. The Commission proposal will be subject to a long legislative process. It is unlikely that the new Regulation will enter into force before 2027.

Please see our detailed analysis of the proposal here.

EU takes time to ready Outbound Investment Control Toolkit

On 24 January 2024, the European Commission adopted five initiatives as part of the European Economic Security Strategy unveiled in June 2023. The initiatives are aimed at bolstering the EU’s economic security interests. Amongst other proposals, the package includes a white paper on outbound investment control, launching a debate on whether and how to scrutinize investment outflows from the EU for the first time in the Union’s history.

Our analysis of this white paper can be found here.

German FDI reviews dropped in 2023, but FDI review activity follows the trends of prior years

The German FDI authority, the Federal Ministry for Economic Affairs and Climate Action (“BMWK”), has published the German FDI screening statistics for 2023.

In 2023, the BMWK reviewed a total of 537 transactions of which 257 were national FDI reviews and 280 related to transactions notified by other EU Member States to the BMWK under the EU FDI Screening Regulation and in relation to which no national FDI filings were submitted. Therefore, the number of national FDI reviews dropped from 306 filings in 2022 to 257 filings in 2023, which represents a decrease of 16%. At the same time, transactions notified under the EU FDI Screening Regulation increased from 264 in 2022 to 280 in 2023.

While the drop in national filings could be due to overall declined M&A activity in 2023, the increase of FDI reviews in other EU Member States notified to the BMWK could be explained by an increase of FDI regimes across the EU (for example, The Netherlands and Belgium adopted FDI regimes in the course of 2023). However, the breakdown of types of national FDI reviews has not changed compared to 2021 and 2022. As in 2021 and 2022 the majority of national FDI reviews, approximately 86%, were cross-sector proceedings in 2023. In consequence, as in 2021 and 2022, sector-specific reviews accounted for approximately only 14% of all national reviews. This is not unusual, given that the sector-specific review only applies to a very limited scope of industry sectors, mainly defense and cryptography, whereas the cross-sector review applies to any other sector.

The origin of investors has not changed significantly either. While screened investments from China have decreased slightly from 37 in each of 2021 and 2022 to 21 in 2023, Chinese buyers were still in the group of the top three non-EU investors screened in 2023, amongst investors from the UK (36) and the US (96). The top three sectors subject to FDI scrutiny in 2023 were information technology (71 transactions), healthcare and biotech (34 transactions) and energy (23 transactions).

The number of longer in-depth reviews (so-called Phase II reviews) stayed relatively low in 2023 and accounted for only 20 national FDI reviews (below 10% of all national reviews) and is therefore similar to 2022. As in recent years, in 2023 the majority of cases (72.5%) were reviewed within approximately 60 days at the latest, and therefore generally without an in-depth review. Only 10 national FDI reviews (4% of all national reviews) were subject to remedies, restrictions or prohibitions in 2023. While the absolute number of cases subject to remedies, restrictions or prohibitions has slightly decreased compared to 2021 (14) and 2022 (12), the percentage of 4% has basically remained unchanged in the last three years.

While absolute numbers of national FDI reviews in Germany have dropped, 2023 generally continued the trend of prior years: German is a amongst the more active FDI regime in Europe, with a relatively high number of filings, the majority of which, however, are cleared rather quickly and without remedies or restrictions. It remains to be seen how the envisaged introduction of a revised standalone investment screening law in Germany (see our analysis here), and the envisaged revisions of the EU FDI Screening Regulation will change such trends in the future.

Italian FDI reviews remain consistently high in 2023, despite the end of the extraordinary (Covid-19 related) FDI regime

Based on a report of the Italian intelligence agency (Sistema di informazione per la sicurezza della Repubblica), in the course of 2023, the Italian Government received 577 FDI filings, along with 150 pre-notifications.

The number of filings remained substantially in line with the previous year, when the Government received 608 notifications. This is interesting because the extraordinary regime introduced in connection with the Covid-19 outbreak expired at the end of 2022, so 2023 was the first “ordinary” year. While many of the extraordinary provisions have in fact become ordinary (including filings by non-EU investors for acquisitions of stakes at least equal to 10% of the share capital), others were no longer applicable (primarily, the obligation of EU investors to notify acquisitions of control in any relevant sector), although as of 2023 the latter have been replaced by almost equally broad provisions requiring all investors, regardless of their nationality (including therefore Italian investors), to notify control acquisitions in the energy, transport, communications, finance, healthcare, and agri-food sectors.

Out of 577 filings, in only 3 cases did the Government veto the transaction, whereas in 33 other cases the transaction was cleared subject to prescriptions. In other 205 cases, instead, the transaction was unconditionally cleared. The majority of filings (310) were deemed out-of-scope, showing that investors continue to submit precautionary filings due to the uncertainties on the scope of application and the serious consequences in case of failure to file.

UK: NSIA decisions, Telegraph Media Group public interest review, and new legislation prohibiting foreign state ownership of newspapers

It has been a busy first quarter in the UK, with several National Security & Investment Act decisions, an on-going public interest review under the Enterprise Act, and proposed legislative changes to prohibit newspaper and periodical news magazine mergers involving ownership, influence or control by foreign states.

e&/Vodafone NSIA Order

In May 2023, Vodafone Group plc announced that it had entered into a Strategic Relationship Agreement with e&, which had increased its stake in Vodafone to around 14.6%. The CEO of e& would also have a seat on the Vodafone board. In January 2024, the UK Government announced that, after calling in the transaction for review under the National Security and Investment Act 2021, it had imposed remedies to address potential national security concerns. The Government found that the Strategic Relationship Agreement would enable e& materially to influence the policy of Vodafone, and that a risk to national security would arise in relation to Vodafone Group Plc’s role in:

• “supporting the UK Government’s domestic and international initiatives in the telecommunications sector;
• contributing toward ensuring UK cyber security; [and]
• acting as a strategic supplier of services to many parts of the UK’s central government, including services provided to UK Government departments which are in support of national security.”

The order imposed by the Government requires Vodafone and e& to:

• “meet certain notification requirements in relation to any alteration to, or termination of the terms of the Strategic Relationship Agreement;
• meet certain requirements relating to Vodafone’s board composition, board committee membership, and board committee functions; [and]
• establish a National Security Committee to oversee sensitive work that Vodafone and its group perform which has an impact on or is in respect of the national security of the UK.”

TransDigm / CPI NSIA Order

The acquisition of Communications & Power Industries’ electron device business by US aerospace manufacturer TransDigm Inc. for around $1.4 billion was announced in November 2023. The target business included CPI TMD Technologies Limited, a UK manufacturer of compact atomic clocks with applications in precision navigation, particularly for the aerospace and defense sector. CPI TMD has undertaken a number of UK-funded development projects.

On February 28, 2024, the transaction was approved under the NSIA, subject to the condition that TransDigm “keep CPI TMD’s research, development and manufacturing capabilities in relation to atomic clocks in the UK,” to address a national security risk relating to “the continued effective operation of critical national infrastructure.” This replicates the condition imposed in September 2022 in relation to a previous transaction involving CPI TMD.

Vishay/Newport Wafer NSIA Order

On March 1 2024, the UK Government allowed semiconductor manufacturer Vishay Intertechnology Inc and its subsidiary, Siliconix Inc, to acquire Newport Wafer, the UK’s largest semiconductor manufacturing facility.

The target is being acquired from Nexperia BV, a Netherlands-based subsidiary of Chinese company Wingtech Technologies. In November 2022, the UK government ordered Nexperia BV to unwind its acquisition of an additional 86% stake in the business due to national security concerns.

As a condition of the acquisition, Siliconix, Vishay or their subsidiaries must inform the UK Government before “completing any agreement to sell, transfer, grant a lease or licence to any third party which allows that third party to use any part of the Newport site.” This condition is designed to mitigate the national security risk which might arise if third parties gain access to “sensitive intellectual property, expertise or other information relating to compound semiconductor design, research and development or manufacturing at the Newport site, including their dual use applications.”

Telegraph Media Group public interest review

In addition to the screening of transactions on grounds of national security under the NSIA, the UK Government has the ability to review transactions on other specified “public interest” grounds under the Enterprise Act 2002. The UK Government’s most recent use of such powers is in relation to the anticipated acquisition of Telegraph Media Group by Redbird IMI.

On 26 January 2024, Culture Secretary Lucy Frazer issued an intervention notice opening a public interest review on grounds of “the need for accurate presentation of news and free expression of opinion in newspapers.”¹ She also imposed a hold-separate Order requiring the Government’s consent in advance of (i) any transfer of the ownership of the business, (ii) any integration of the business, (iii) any significant changes to the management and oversight of the business, (iv) any changes to the boards of the business or RB Investco Group (the proposed acquirer), (v) changes to the corporate structure of RB Investco Group, or (vi) changes to key staff.

On 19 March 2024, the Culture Secretary announced that she was “minded to” call in the transaction for a Phase 2 public interest review “on the grounds of the need for accurate presentation of news and free expression of opinion in newspapers.”

• This was based on the report received from Ofcom on 12 March (not yet published) finding that “the potential merger situation may be expected to operate against the public interest, having regard to the specified public interest considerations. In particular, they consider that International Media Investments (IMI), a majority partner in RB Investco’s parent company, may have the incentive to influence TMG in a way that could potentially act against the public interest in the UK by influencing the accurate presentation of news and free expression of opinion in the Daily Telegraph and the Sunday Telegraph newspapers.”
• The CMA’s report on 12 March (also not yet published) confirmed its view that the transaction qualified as a “relevant merger situation” and could therefore be subject to review, but did not identify any relevant competition concerns.
• The letters sent to the parties, which provide additional detail on the matters identified by Ofcom (pages 4-5), are here and here. The letters also indicate that Redbird IMI proposed Undertakings on 30 November 2023 and updated its proposal on 8 March 2024. The Secretary of State will consider, with advice from Ofcom and the CMA, whether to accept the Undertakings in lieu of a Phase 2 reference.
• The parties had until 2 April to respond. There is no deadline for the Secretary of State to decide whether to open a Phase 2 review.

Proposed legislative changes to exclude foreign state ownership of newspapers

In parallel to the Telegraph review, the Government indicated in the House of Lords on 13 March 2024 that it intended to amend the Digital Markets, Competition and Consumers Bill, currently progressing through Parliament, to “rule out newspaper and periodical news magazine mergers involving ownership, influence or control by foreign states.” The full statement can be found here.

On 27 March 2024, the amendments were formally proposed. The new rules would be implemented by amending the Enterprise Act 2002 to add a new section 70A requiring the Secretary of State to issue a “foreign state intervention notice” in the event of a “foreign state newspaper merger situation.” Such a notice would need to be given if the Secretary of State had reasonable grounds to suspect that a transaction would enable “a foreign power […] to control or influence the policy of the person carrying on the newspaper enterprise [or] to control or influence the policy of that person to a greater extent.”

The CMA would then be required to report to the Secretary of State as to whether a “foreign state newspaper merger situation” had been created or was contemplated. If so, the Secretary of State would be required to make an order “for the purposes of reversing or preventing the creation of the foreign state newspaper merger situation identified in the report.”

The proposed legislation anticipates that the level of shareholding and other rights that would enable the foreign power to be able to control or influence the newspaper would be set by regulations made by the Secretary of State. In the initial announcement in the House of Lords, the Government indicated that this threshold would be “considerably lower than the current thresholds for material influence in the Enterprise Act.” This suggests the threshold will be materially lower than 15%.

The Government also indicated that it “intends to use powers set out in the amendments in the Bill to provide that the new regime does not apply to certain foreign state investment organisations, such a sovereign wealth funds or public pension reserve funds from having a passive investment in UK newspapers and news magazines where the level of investment is under a specified threshold. […] This will ensure the new foreign state newspaper ownership restrictions are focused on investments where the intention is or is likely to be to be able to influence newspaper enterprises’ broader strategic objectives and its editorial policies, rather than purely have investment goals.”

The new regime will apply retrospectively from 13 March 2024, so will apply to any merger situations that are completed after this date and any arrangements to create a future foreign state merger situation that are in progress or in contemplation on this date.

¹A public interest review was initially opened on 30 November 2023, but this was superseded by the January 2024 review as a result of a change in transaction structure.

In the U.S., updates to the Critical and Emerging Technologies List signal refinement of focus for CFIUS

The U.S. National Science and Technology Council (NSTC) recently published an updated list of critical and emerging technologies (CETs) as part of an ongoing effort to identify advanced technologies that are potentially significant to U.S. national security. Such technologies also likely would be considered critical technologies under the regulations administered by the Committee on Foreign Investment in the United States (CFIUS).

For further details, please see our update here.