German government veto takeovers by foreign investors

The German government has given approval to a measure that will make it easier for takeovers of certain German firms by foreign investors to be vetoed. The move is designed to protect the country’s technical ‘know-how’ and intellectual property. Will German assets and the DAX index in particular benefit on the announcement?

Protecting Germany’s Intellectual Property

The move by the German Economy Ministry allows the German government to effectively prevent foreign companies from ‘endangering the critical infrastructure’ of the country by making takeover bids. The ruling, approved by German Chancellor Angela Merkel’s cabinet last week, is aimed particularly at software companies that work closely with airports, banks, and hospitals, managing telecommunications and cloud data.

Ultimately, the idea is to prevent Germany losing control of these assets to foreign countries and is directed primarily towards investors from outside the EU. The new measure means that the takeover process would be considerably slower than it is currently, allowing the government to take up to four months in researching a bid prior to approval or rejection. The extra time will allow authorities to check to ensure that a foreign investor is not established in the EU in an attempt to circumvent the regulations.

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Warnings Of A European Expertise ‘Sell-off’

Earlier this year, French, Italian, and German economic ministers highlighted the issue of an impending ‘sell-off’ of European expertise to investors from non-EU companies. The EU Commission was warned of the danger amid fears that such actions would devalue the German markets. France has backed the initiative and French president, Emmanuel Macron, has also called for a mechanism that would allow EU countries to vet and possibly block buy-out attempts by non-European companies.

Angela Merkel’s efforts to guard Germany’s firms against foreign takeover bids come just days following the G20 Summit in Hamburg, which saw members reaching an accord to ‘fight protectionism’ while still permitting other world nations to protect their own country’s markets through the use of unspecified ‘legitimate trade defence instruments’.

Post Brexit implications

Clearly this latest move by Germany could have an impact on UK firms seeking to expand into the EU following Brexit. Much will depend on the deal that can be struck by Teresa May and the remaining EU leaders regarding trade, and investors would be well-advised to tread carefully in the intervening months.

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