Overall impact
Defence and national security
Energy, transport and communications

Guidelines for exercise of veto powers
Filing obligations and timetable for approval
Penalties for non-compliance

On March 15 2012 the government approved Legislative Decree 21/2012, which gives it new powers of intervention and veto in the sectors of defence and national security, energy, transport and communications. The new rules are already in force, but are subject to confirmation or amendment by Parliament within 60 days of their date of approval. However, the ambiguous wording of the decree could give rise to doubts about its correct implementation. The existing text will require significant implementing regulation to address certain issues, not least to define the scope of the energy, transport and communication sectors.

Overall impact

The new set of rules could have a significant impact on investments by non-Italian entities in companies that operate in the defence, energy and transport sectors.

The new rules are the first to assign such broad and general powers to the government; previously, there was no general rule restricting foreign-controlled investment in these sectors. On certain occasions the government has tried - sometimes successfully - to stifle or veto unwelcome foreign investments by the use of emergency decrees (as in the case of Lactalis's takeover of Parmalat), or by adopting a broad interpretation of certain governmental powers (as it did in Crown Castle's proposed acquisition of RAI WAY TV's tower network in 2001). However, such interventions have drawn sharp criticism from those who regard such actions as being in breach of the law.

The government may have much less difficulty in vetoing transactions in future, since it will no longer have to create a legal basis for exercising its power in specific cases. For example, it may have far greater freedom to scrutinise investments by sovereign funds. Similarly, an Italian bidder that is competing for a target in a sector that is designated as strategic may be able to use the new rules to defeat a foreign bidder. When structuring corporate transactions involving targets that are active in a strategic sector, parties should consider carefully the possible application of the newly introduced veto powers.

Defence and national security

The decree allows the government to exercise specific powers in relation to a transaction, regardless of the nationality of the parties involved, if it perceives an actual threat of serious harm to a significant national interest in the field of defence and national security. The government may:

  • impose specific restrictions relating to security of supply and information, technology transfers and exports; and
  • veto a corporate transaction (including a merger, spin-off or sale of business), as well as other corporate actions (eg, relocations).

Energy, transport and communications

In the energy, transport and communications sectors, the government's powers depend on whether the investment is made by an EU entity or a non-EU entity.

Investments by EU entities
For EU investments, the government may veto corporate resolutions and transactions that would result in changes in ownership, control or use of strategic networks, infrastructure or assets of strategic importance. In addition, the government may impose specific restrictions. However, it may exercise such powers only if it finds "exceptional circumstances" which present a significant threat of serious harm to the public interest in the security and operation of networks and equipment, or in the continuity of supply.

Investments by non-EU entities
If the investing entity is a non-EU company, the government may impose specific restrictions or veto the transaction to safeguard the public interest in the event of an actual threat of serious harm.

Therefore, in line with EU principles (which state that intra-EU investments may be restricted in exceptional circumstances), it seems that the standard for vetoing investments by non-EU entities is lower: this is because the "threat of serious harm" is insufficient, as such threat must be based on "exceptional circumstances".

Guidelines for exercise of veto powers

The new rules lay down guidelines for the government in determining whether to exercise its powers. The guidelines are similar for all relevant sectors, but vary slightly according to the structure of the investment - for example, whether it takes the form of an asset transaction, a stock transaction or a merger. Generally speaking, the factors to be assessed include:

  • the strategic importance of the assets being transferred, the security of the information and suppliers, and Italy's international interests;
  • the question of whether the purchaser's plans provide adequate assurances on:
    • maintenance of technological assets;
    • security and continuity of supply; and
    • the fulfilment of contractual obligations with public entities; and
  • the question of whether there are connections between the acquisition and states that:
    • do not comply with international law, the principles of democracy or the rule of law; or
    • are believed to maintain relationships with criminal and terrorist organisations.

In exercising its powers, the government must act with "reasonableness and proportionality". Thus, it may not impose excessive measures where less restrictive measures would be equally effective in protecting the public interest.

Filing obligations and timetable for approval

The relevant party must notify the transaction within 10 days (or before the adoption of the relevant resolution, depending on the transactional structure being used). The government may exercise its veto or impose specific restrictions within 15 days of notification; however, a short extension may be granted in order to obtain further information.

Penalties for non-compliance

The consequences of failing to comply with the new rules also vary slightly according the sector in question and the structure of the transaction. In general, if a company adopts a resolution in breach of the filing requirements, it is deemed null and void. The government may:

  • require the parties to undo the operation and restore the entities involved to their pre-closing status, at the parties' own cost; and
  • impose an administrative fine equal to twice the value of the transaction (or 1% of the aggregate turnover of the companies involved in the transaction, if this is greater).

In specific cases, voting rights relating to the relevant stock purchased by the acquiror are frozen until the 15-day post-notification period expires. If the acquirer fails to comply with this requirement, it will be prohibited from exercising its voting rights and will be required to transfer the acquired interests within one year.

For further information on this topic please contact Francesco Portolano at Portolano Colella Cavallo Studio Legale by telephone (+39 066 966 61), fax (+39 066 966 6544) or email ([email protected]).