The recently published Presidential Decree February 19th, 2014, n. 35, regulates the procedures through which the Italian Government can exercise special powers (a.k.a. "golden powers") over undertakings operating in the defence and national security sectors. Such powers range from vetoing acquisitions of holdings and other corporate operations to imposing specific security of supply and business continuity obligations. The new regulation, effective since March 2014, enacts the regulatory framework introduced by law-decree 15 March 2012, n. 21 in relation to undertakings operating in strategic sectors such as defence and national security, energy, transport and communications (Articles 1 and 2 l.d. 21/2012 , converted with amendments into law 11 May 2012, n. 56).
The Italian Government "special powers" over undertakings carrying out strategically relevant activities or holding assets of strategic importance
L.d. n. 21/2012 allows the Italian Government (Prime Minister) to exercise special powers in relation to companies which carry out activities deemed to be of strategic importance in the defence and national security sectors ( Article 1), and in relation to companies holding assets deemed of strategic importance in the fields of energy, transport and communications ( Article 2).
D.P.C.M. November 30, 2012, n. 253, has identified the activities of strategic importance in the defence and national security sectors which trigger the application of the special powers regulatory framework.
Such activities include, inter alia, study, research, design, development, manufacture, integration and life cycle support of several systems and materials listed by the d.P.C.M. The list includes command, control, computer and information systems- C4I; advanced C4I sensors, including remoted piloting aircraft systems (MALE and UCAV); mines and IEDs detection and protection systems; advanced weapons systems integrated in C4I networks; aerospace and military marine propulsion systems with high reliability; stealth and RAM materials.
Assets of strategic importance in the fields of energy, transport and communications will be identified by future dPCMs.
The special powers of the Government may be exercised only in connection with the following events:
- acquisition, by entities other than the Italian State or Italian public bodies, of holdings in any company operating in strategic sectors;
- adoption of shareholders' resolutions relating to corporate transactions such as mergers, demergers, transfer of business branches; transformation and dissolution of the company, changes to the business purpose of the company, amendment of statutory provisions.
In such circumstances, upon the submission of a mandatory preventative notification by the interested parties, the Government shall determine whether there are justified grounds to conclude that the operation might endanger national security and national defence. The exercise of special powers is subject to the actual existence of a threat of serious prejudice to the essential interests of defence and national security (or, in the energy, transport and communications sectors, to public interests relating to the safety and operation of the networks and systems).
The threat of serious prejudice shall be assessed on a case by case basis in the light of objective and non-discriminatory criteria - which shall take into account, inter alia, the economic, financial, technical and organizational structure of the acquirer of holdings, the business plan, business continuity and security of supply, with specific regard to supply agreements with the Italian administration, of the strategic undertaking concerned. Possible links between the acquired of holdings and the countries that do not abide by fundamental democratic principles, the rule of law and the principles of international law, or any dealings of the acquired of holdings with terrorist or criminal organizations are also negatively evaluated.
If it is concluded that the notified transaction may entail the risk of serious prejudice for the public interests of defence and security, the Government has discretionary powers to:
- (in connection with the acquisition of holdings) impose specific conditions relating to supply and information security, technology transfer and export controls;
- (in connection with the acquisition of hodldings) veto the acquisition of relevant holdings (including controlling interests);
- (in connection with the adoption of corporate resolutions) veto the adoption of the shareholders' meeting or board of directors resolutions aimed at carrying out relevant corporate transactions.
The procedure for the exercise of special powers and possible consequences
Presidential Decree 19 February 2014, n. 35 sets out the procedural rules for the exercise of special powers. The new regulation clarifies the parties responsible for the submission of the preventative notification, the content and validity requirements of the notification; the investigation procedure and the authorities involved; the monitoring of the effects of governmental determinations, and the procedure for imposing administrative fines for non-compliance with the Government decisions.
A similar regulation, containing the same procedural requirements, is being adopted with reference to the sectors of energy, transport and communications.
Businesses falling within the scope of the regulation (e.g. strategic undertakings intending to adopt a shareholders' resolution; entities intending to acquire relevant holdings in a strategic undertaking) are required to submit a preventative notification to the Presidency of the Council of Ministers, giving a reasonable notice, providing all the essential information to assess the impact of the transaction. In particular, the notification must include a description of the transaction and the business plan, and can include specific commitments aimed at ensuring the integrity of public interests related to defence and national security.
The administration has then 15 days to assess whether the situation requires the exercise of special powers and whether all the conditions for the exercise of special powers are met. The deadline for exercising the special powers may be suspended only once, if the administration needs to receive further information from the applicant. The administrative procedure involves the participation of the ministries of foreign affairs and economic development, and is concluded with the adoption of a formal presidential decree if a veto or conditions are imposed. A mere comfort letter or just silence can follow if the situation is deemed not to require the exercise of special powers – if no measure is imposed within the 15 days deadline, the transaction shall be considered cleared.
To ensure the special powers' effectiveness, not only the failure to submit a preventative notification results in the imposition of criminal penalties and administrative fines (ranging from one per cent of the combined turnover of the undertakings involved up to twice the value of the transaction), but any shareholders' resolutions adopted remains ineffective. Furthermore, the rights arising from shares that may have been acquired are suspended ex lege, resulting in invalidity of any resolution for the adoption of which the vote of these investments have been crucial.
First examples of the exercise of special powers by the Italian Government
The Italian Government has exercised its special powers in the fields of defence and national security in a number of cases. While no veto has been issued, presidential decrees imposed specific obligations in relation to the acquisition of Avio SpA "field propulsion and power transmission" business branch by General Electric, which acted through its subsidiary Nuovo Pignone Holding SpA, as well as in relation to the acquisition of shares in Piaggio Aero Industries SpA by Mubadala Development Company, an UAE Government investment company. In general, it appears that the Italian Government pays special attention to the preservation of programs co-financed by the Government or by the Italian armed forces and to business continuity, both in terms of management and of key employee stability. It is reasonable to expect that similar conditions may be the subject of informal discussion with the administrations involved.