The Situation: Recent foreign investments in Italian blue chips led the Italian government to intervene to protect strategic assets.
The Result: Decree 148/2017 introduced new disclosure requirements regarding stakebuilding in Italian listed issuers and strengthened the Italian government's "golden powers" in relation to foreign investment in strategic industries.
Looking Ahead: The new disclosure requirements could have far-reaching consequences if not addressed before the Decree is converted into law. The boost in the government's golden powers broadens the spectrum of targets subject to government scrutiny.
In the wake of recent foreign investments in certain Italian blue chips, the Italian government issued Law Decree No. 148 of October 16, 2017 ("Decree"), which introduced new sweeping disclosure requirements triggered by the acquisition of qualified interests in Italian listed issuers. The Decree also expanded the so-called "golden powers" that the Italian government can exercise with respect to Italian companies operating in certain strategic industries.
New Stakebuilding Disclosure Requirements
In addition to the existing disclosure requirements regarding acquisitions of (or derivatives on) voting shares of Italian listed issuers in excess of certain thresholds starting at five percent for small/mid caps and three percent for large caps, the Decree now requires anyone who acquires an interest in an Italian listed issuer equal to or greater than 10 percent, 20 percent, or 25 percent (i.e., each time any of such thresholds is crossed) to disclose to the issuer and CONSOB, within 10 days, its goals for the next six months. The disclosure must indicate, among other information:
Their sources of financing;
- Whether they are acting in concert with others;
- Whether they plan to continue increasing their stake, including to gain control of the issuer or influence its management;
- Their intentions about any shareholders' agreement to which they are a party; and
- Whether they plan to push any change in the issuer's board of directors or supervisory board.
Should the investor's goals or intentions change in the six months following such disclosure, the investor will be required to promptly update the disclosure for an additional six-month period. If the previous disclosure was misleading or untruthful this could result in a market manipulation conduct. In the event of a failure to comply with the disclosure requirements, fines and other sanctions apply, including suspension of voting rights.
The Italian government mandated CONSOB, the Italian securities market regulator, to issue regulations implementing the new disclosure rules set forth by the Decree.
Preliminary Comments About the New Disclosure Rules
The Decree raises certain issues that should be addressed by the Italian Parliament before conversion of the Decree into law or by granting CONSOB a broader mandate to implement the Decree's provisions:
- The new disclosure rules have far-reaching consequences as they apply to both large caps and small/mid caps. Since the majority of Italian listed issuers are small/mid caps, the new rules will impose additional burdens to investors in this market segment and may interfere with the investment strategies of institutional investors. Consideration should be given to restricting the scope of the new rules to large caps.
- While the new rules set forth in the Decree apply to any acquisition of shares, however accomplished, it would appear reasonable for exemptions to apply to acquisitions of shares made either in the context of a tender offer or in excess of the applicable threshold requiring the launch of a mandatory tender offer. In both cases, the offer document already provides ample disclosure about the matters covered by the Decree, which suggests that duplicative disclosure be avoided.
- The Decree appears to limit the application of the new disclosure requirements only to acquisitions of shares and not to derivatives. Unless the scope of the new rules is extended to encompass derivative transactions before conversion of the Decree into law, the effectiveness of the new rules may be limited.
Expansion of "Golden Powers" Scope
The so-called "golden powers" permit the Italian government to veto or impose conditions, among others, on (i) acquisitions by anyone (including Italian, EU, or foreign nationals) of interests in Italian entities operating in the defense and national security sector; or (ii) acquisitions by non-EU nationals of controlling interests in Italian entities operating in the energy, transportation, and telecommunications industries.
The golden powers apply to Italian companies performing certain strategic activities in these sectors, regardless of whether they are publicly traded or privately held and without regard to any minimum size requirements. In order for the Italian government to exercise its golden powers, those who intend to carry out transactions involving Italian in-scope entities must notify the Italian government in advance.
Among other provisions, the Decree:
- Introduced a fine of not less than one percent of the combined revenues of the concerned entities and not more than twice the value of the transaction in all cases of failure to notify the Italian government;
- Added high-tech companies (e.g., those dealing with data storage and processing, artificial intelligence, robotics, semiconductors, dual-use technology, and space/nuclear technology) to the industries that are subject to the golden powers;
- Made the proposed acquisition by non-EU nationals of high-tech companies subject to the golden powers and relevant prior notice requirements; and
- Indicated that, if the investor is controlled by a non-EU government, the Italian government will consider this as a relevant factor when assessing whether the investment can affect national security or public order.
Three Key Takeaways
- Decree 148/2017 introduced new disclosure requirements regarding stakebuilding in Italian listed issuers and boosted the Italian government's "golden powers" to curb foreign investment in certain strategic industries.
- The new disclosure requirements appear to be far-reaching in scope and raise interpretive issues.
- The boost to the Italian government's "golden powers" broadens the spectrum of targets subject to government scrutiny.