CELIS Update on Investment Screening – May 2024
Netherlands – First interim relief court ruling to restrict the retroactive FDI enforcement by Dutch Minister
Only two weeks after the Investments, Mergers and Acquisitions Act (FDI Act) came into force on 15 June 2023, the Minister made use of the possibility under the FDI Act to retroactively ‘call-in’ transactions that took place before the FDI Act came into force. The Dutch Minister ordered the plaintiff, a company operating in the Netherlands that produces micro-optical products such as lenses, lasers, optical coatings and optical systems based on chip technology, to file a notification for an earlier (alleged) transaction. However, the plaintiff applied to the court for interim relief in summary proceedings and the District Court of Rotterdam issued its first ruling on the Investments, Mergers and Acquisitions Act on 25 April 2024.
The FDI Act applies retroactively to qualifying transactions concluded after 8 September 2020. Transactions that fall within this period can be reviewed and the parties involved can be instructed by the Minister to notify the transaction retroactively.
The court ruled that the “reasonable suspicion” in Article 58(1) of the FDI Act, which is required for retroactive notification and review, relates to the potential risks to national security and does not apply to the question of whether the transaction concerns an “acquisition activity”. The court ruled in favour of the plaintiff that the Minister’s formal decision requiring the plaintiff to file a notification for review did not meet the Minister’s required standard of care in investigation and preparation, and that the plaintiff was improperly placed with the burden of showing that its transaction did not constitute “acquisition activity”. It was held that the Minister was not authorised to direct the applicant to make an FDI filing under the Vifo Act.
The FDI Act can be accessed here (in Dutch).
UK – Update of the NSIA Guidance and clarification on the scope of the call-in power
The UK Government has published the updated Market Guidance and revised Statement on Section 3 of the National Security and Investment Act (NSIA) in response to last year’s consultation on “narrowing and refining” the scope of the National Security and Investment Act (NSIA).
The updated Market Guidance provides guidance on a number of issues relevant to the application of the NSIA. It clarifies that the NSIA applies to Outward Direct Investment where the acquired company carries on activities in the UK or where an asset acquired from outside the UK is used in connection with the carrying on of activities in the UK. In addition, the Market Guidance clarifies what constitutes an acquisition and what type of academic collaboration is notifiable. In particular, collaborations relating to activities in mandatory sectors are likely to be of interest to the Government, especially where an acquirer gains greater control over an asset. The Guidance explains how the time limits are calculated and clarifies that the time limits for screening can only be accelerated in exceptional circumstances and generally only at the stage when the Secretary of State is deciding whether or not to notify an acquisition.
The new “Section 3 Statement” explains how decisions are made and what the Secretary of State wants to protect with the call-in power. The risk factors relevant to a decision to call in investments are explained in more detail. A first consideration is whether the target company could be used in a way that poses a risk to national security. Another important consideration is whether the acquirer poses a risk, for example, because of its past intentions and conduct, its existing capabilities or its links or affiliation with a state or organisation hostile to the UK. It is reiterated that the Secretary of State will not make a judgement solely on the basis of the acquirer’s country of origin. A final factor to consider is the level of control being acquired – if the other risk factors are higher, a low level of control will be considered to reduce the overall risk to national security.
The updated National Security and Investment Market Guidance can be accessed here.
The updated Statement for the purposes of section 3 can be accessed here.
EU – In Depth Analysis on European Economic Security
On 2 May 2024, the European Commission published its In-Depth Analysis „European Economic Security: Current practices and future developments”, placing the initiatives at EU level in this area in an overarching framework. It analyses the challenges of economic security and the approaches of other major economies as well as the European strategy.
In conclusion, it can be said that European measures in this area have undergone a remarkable development. Nevertheless, challenges remain, particularly with regard to the coordination of measures that are still largely a national responsibility. In addition, progress needs to be made in aligning incentives for both companies and countries to avoid moral hazard risks and in harmonising the foreign policies of EU countries to give credibility to economic security instruments.
The European Economic Security In-Depth Analysis can be accessed here.
UK – United Kingdom grants conditional security clearance for Vodafone-Three merger
On 9 May 2024, following a detailed national security assessment of the telecom deal, the UK government issued a final order conditionally approving the proposed merger between Vodafone’s UK operation and Hutchison’s Three UK.
One of the conditions of the merger approval is that the companies establish a “National Security Committee” to oversee sensitive work that affects or could affect national security. The security committee set up by the companies must provide regular updates to the UK government and the telecoms companies are required to set up a technical group within the committee to oversee specific issues.
The merger of Vodafone and Three, announced last year, will reduce the number of mobile networks in the UK from four to three. In a joint statement, Vodafone and Three said they were pleased with the national security approval and would continue to co-operate with the Competition and Markets Authority.
