Foreign Takeovers

Shooting Yourself in the Foot

A robotic arm fills a glass with Bavarian Weiss beer at the booth of German company Kuka at the world’s biggest industrial fair, “Hannover Fair
The sale of robotics firm Kuka to a Chinese firm got the German government thinking. Only German businesses don't necessarily want the help. Source: Reuters

You would think German firms would be happy. The German government on Wednesday moved to tighten controls on foreign takeovers involving sensitive technologies or critical infrastructure. Only instead of drawing praise, Berlin’s move has drawn sharp criticism from political and industry leaders. Among other things, businesses complain they were never consulted.

The new rules announced by the Economics Ministry, which do not need parliamentary approval, increase the time for government officials to review takeovers with an eye to blocking them, while expanding the definition of what could be considered “sensitive” technology. The toughened stance comes after recent controversies over the appetite of state-owned Chinese companies for German firms with innovative technologies.

Critics, however, noted the timing is particularly awkward after German Chancellor Angela Merkel hosted world leaders at a summit in Hamburg this weekend, where she talked tough on the importance of keeping global trade free and fair.

“It is more than regrettable that the Economics Ministry sends a signal of protectionism into the world just a few days after the G20 summit,” said Michael Fuchs, deputy chairman in parliament for the center-right Christian Democrats, which are led by Ms. Merkel.

In Germany’s current grand coalition government, the economics portfolio has been held by the center-left Social Democrats. The new rules, which go into effect in a few weeks, were approved by Ms. Merkel’s entire cabinet.

“The government should more fully include the German businesses it wants to protect in such a sensitive assessment.”

Achim Dercks, Association of German Chambers of Commerce and Industry

The number of takeovers has risen sharply in recent years. China, with its ambitions to acquire cutting-edge technology for its own companies, has been particularly active and willing to pay high premiums. Chinese company Midea’s acquisition of robot-maker Kuka and the bid for semiconductor equipment supplier Aixtron, which Berlin blocked at the behest of the United States, were two cases that were highly publicized.

The ministry emphasized, in announcing the new rules, that they mark no changes in the criteria for blocking a takeover but broaden the opportunity for the government to review the transaction. Nonetheless, experts are certain that they will lead to more government vetoes, especially in sensitive areas. The new rules encompass broad areas of “critical infrastructure,” including software technology driving them.

Industry groups recognized the need to protect sensitive technologies, but expressed concern that rules set new limits on Germany’s open economy, especially since industry was not sufficiently consulted.

“Open borders, protection of private property and free capital flows are central to our welfare,” said Achim Dercks at the Association of German Chambers of Commerce and Industry. “For this reason, the government should more fully include the German businesses it wants to protect in such a sensitive assessment.”

Stefan Mair at the Federation of German Industries, the BDI, added: “The broad definition of many areas of the German economy as critical infrastructure is problematic. It makes Germany less attractive as a location for investment.”

There’s also a concern that other countries could respond in kind. Michael Theurer, a member of the pro-business Free Democrats in the European Parliament, criticized the Berlin government for its unilateral action. “A law should be enacted at the European level, not the national level,” he told Handelsblatt. “Otherwise there is the threat of a protectionist arms race.”

The approval of the new rules followed months of debate in the Economics Ministry, which began when former Social Democratic party chairman Sigmar Gabriel headed the ministry. His successor, Brigitte Zypries, inherited the problem from him. “In recent years, the number and complexity of firm acquisitions has clearly risen,” Ms. Zypries said in announcing the new restrictions. “In the future, compulsory registration and adequate review deadlines will provide better protection and more reciprocity, precisely for firms in critical infrastructure.” Whether those firms like it or not.

Dana Heide is a political correspondent for Handelsblatt based in Berlin. To contact the author: heide@handelsblatt.com

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