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Italy’s Golden Power reform: what’s new for foreign investors

Italy’s Golden Power reform: what’s new for foreign investors
A new Directorate-General in the government’s offices will allow for an extension of Italy’s special powers, which are designed to protect strategic assets from M&A deals and other takeovers that could undermine the nation’s sovereignty

What’s happening: the Italian government will soon boost its capacity to monitor and deal with corporate takeovers, as anticipated by Reuters. It will do so by creating a new Directorate-General at the cabinet’s office.

  • This essentially upends the way Italy uses its “Golden Power”, i.e. the government’s lawful intervention in companies’ dealings to protect national security and strategic assets.

Instead of proceeding case-by-case and relying on information provided by the companies, the new Directorate-General will have an always-on monitoring unit and increased staff to carry out “strategic analysis of what is happening in relevant markets”.

  • Also, the new rules will force the companies holding strategic assets to inform the government as soon as they enter talks, even preliminary ones, with potential new shareholders.
  • Prime Minister Mario Draghi’s government extended the Golden Power’s scope to include strategic assets like the 5G network. Meanwhile, there’s been an uptick in notifications on behalf of the companies: they rose to 496 in 2021 from 341 in 2020.

Why it matters: the changes will significantly boost Rome’s ability to monitor and intervene in any changes to the ownership structure of strategic firms. Ultimately, the government will be more capable of blocking partial or complete takeovers by foreign actors that might not have Italy’s best interest at heart.

  • Under PM Draghi, the government made vast use of its Golden Power to halt (four) Chinese acquisitions in just over a year.
  • It also moved to reduce the Chinese stake in the national energy sector, where State Grid of China owns 35% of CDP Reti, a critical State-backed company with shares in the energy & utility companies operating Italy’s infrastructure.

Protection from Chinese predators: over the past years, the Beijing-backed investors seem chiefly interested in extending China’s influence in the Italian economy and acquiring Italian technology, buying leading tech companies and thus forcing technology transfer

  • Examples include the Chinese bids for tech companies such as Alpi Aviation, a drone maker, robotics company Robox, and Blue Engineering, specialising in the design and engineering of aerospace, automotive, naval and railway vehicles.

What’s different for foreign investors: prospective foreign bidders should expect an extensive due diligence process to comply with the new notification requirements if they set their sights on Italian companies that hold strategic value for the State and its inhabitants.

  • Companies that fall into this scope include those operating in sensitive sectors (energy and utilities, telcos, health and education, roads and rails), as well as finance-adjacent companies (banks, insurance) and other strategic companies (defence, aerospace, cybersecurity).
  • Although these efforts are mainly aimed at halting geopolitically unsavoury takeovers, they will apply to all foreign investors and firms, including those hailing from the European Union itself.

Legal issues? Doubts have emerged about the government’s latest intervention to strengthen the Golden Power. A new provision requires companies to submit an “annual procurement plan”. However, as insiders point out, companies often find themselves having to change their purchasing plans due to market needs.

  • This is all the more true for the ICT sector, such as suppliers and operators of the 5G network, who must deal with changing technologies and keep up with innovation.
  • The new rules, which are expected by May, could trigger additional legal challenges.

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