The German Government has recently approved a bill permitting the Federal Ministry of Economics and Technology (Ministry) to veto the acquisition of certain German businesses/companies by certain foreign investors if such acquisition poses a threat to the public policy and security of Germany. The bill amends the current German Foreign Trade and Payments Act (Außenwirtschaftsgesetz) and the related ordinance (Außenwirtschaftsverordnung), which until now only provided for consent requirements and veto rights in case of acquisitions of companies engaged in the military weapons, ammunition and military equipment business. The bill is intended to be enacted by the end of 2008.

The aim of the bill is to ensure sufficient protection against “hostile” investors, namely state funds of certain other countries gaining too much economical and thus political influence in Germany by virtue of being shareholders of domestic companies. The idea of such a veto right met strong opposition in the market. Concerns were raised that such veto right might be used by the German Government to exclude generally foreign investors from acquisitions in Germany or to obtain extensive government influence over commercial activities.

As discussed below, these concerns have proved to be unwarranted. The new bill will only permit vetoing transactions where fundamental security interests of the state are at risk due to participations of foreign investors in companies engaged in essential industries, and where the perceived threat to security cannot be countered by any other means. The bill, which is to a large extent in line with corresponding laws in the UK, France and the United States, is neither intended to restrict the free investment regime in Germany nor to provide for a general requirement for foreign investors to obtain clearance if they want to invest in Germany.

Who is affected by the new rules?

The new veto rights apply only to investors from outside the European Union and the European Free Trade Association (the latter includes Norway, Switzerland, Liechtenstein and Iceland), so that EU/EFTA investors are not affected.

Which kind of transactions may be vetoed?

The veto right applies to the acquisition of entire businesses/companies or to shareholdings, where the investor would obtain at least 25 per cent of the voting rights. This includes general shareholdings as well as any other kind of agreements under which foreign investors obtain rights comparable to that of shareholders (eg by way of voting agreements or fiduciary participations).

What does “Public Policy and Security” mean?

Pursuant to the new rules the acquisition by a foreign investor may only be vetoed if it leads to a threat to the public order and security and if a veto of the transaction is regarded as the only appropriate remedy. A threat to “public policy and security” means a substantial impairment of the safety of the state and its institutions against internal and external threats. It follows that only transactions in highly security-sensitive sectors may be affected, such as nuclear energy, telecommunication and areas where important governmental authority is exercised by a company (such as a private prison service provider, or a printer of bank notes and passports), and where a particular threat arises from the possibility to abuse its position. Obviously the government would like to prevent a foreign intelligence service from being able to monitor telecommunication traffic, or gain access to prisoners by buying a telecommunications or prison service provider. The vast majority of transactions are thus outside the scope of the new bill.

When may the veto right be exercised?

The Ministry may investigate acquisitions by foreign investors within three months from the conclusion of the relevant sale and purchase agreement or public takeover offer. In the event that the Ministry decides to launch an investigation, it is entitled to demand access to all documents relating to the acquisition. The Ministry then has two months to exercise its veto right. The exercise of the veto right further requires the consent of the entire German Government. In the event that the veto right is exercised, the underlying sale and purchase agreements as well as any already completed transfer agreements are invalid.

In order to avoid any risks in this regard, any investor may request the Ministry to issue an advance ruling with binding effect that it does not regard the acquisition as a threat to public policy and security.

It is further important to highlight in this context that neither a foreign investor, nor the target company or the sellers are obliged to notify the Ministry of a participation in a German company and accordingly the above mentioned period for the launching of an investigation may expire before the Ministry becomes aware of the participation. However, the German Federal Financial Supervisory Agency (BaFin) as well as the German Cartel Office may provide the Ministry with information required for the exercise of the veto right so that it is likely that the Ministry will in most cases be aware of relevant participations.


The legal impact of the bill for foreign investors will be much less drastic than originally feared. The veto right may only be exercised in truly exceptional cases where acquisitions by foreign investors substantially concern fundamental interests of the state, eg in the field of security-sensitive areas. In contrast, for the vast majority of acquisitions by foreign investors the new rules will not be relevant. Residual risks and uncertainties with respect to particular transactions may be excluded by way of obtaining an advance ruling by the Ministry that it does not regard the acquisition as a threat to public policy and security or by way of providing that the expiry of the three months’ period for the launching of an investigation and the two months’ period for the exercise of the veto right are conditions precedent for the closing of a transaction.