German federal government enacts tightening of invest-ment review in the health sector

In the view of Federal Minister of Economics Peter Altmaier, the 15th FTO Amendment is intended to ensure that the German federal government is made aware of, and is able to review, critical corporate acquisitions in the health sector. The current Corona crisis makes clear how important medical know-how and domestic production capacity can be in crisis scenarios in Germany and Europe. The amendments are nonetheless not time-limited.
The Federal Ministry of Economics and Technology (BMWi) intends to submit further proposals for FTO amendments this summer. These proposals will supplement the amendments to the Foreign Trade Act previously enacted by the federal cabinet on 8 April 2020 and now in parliamentary proceedings (see our Client information in this regard).

Key Facts

• Expansion of notification requirements to cover investments in the fields of pharma-ceuticals, medical devices, personal protective equipment and in vitro diagnostics
• Specification of prohibition criteria
• Clarification on investment review for asset deals
• Further details on notification requirements

We have summarized the most important changes in more detail below.

1. Expansion of notification requirements

The 15th FTO Amendment expands the notification requirements for (direct or indirect) acquisitions of at least 10% of the voting rights in German companies by acquirers from outside the EU and EFTA to include target companies that

• develop, produce, market, or hold a license under pharmaceuticals law for pharmaceuticals as defined in § 2 para. 1 of the German Medicines Act that are essential to ensure the provision of health care to the population, including such pharmaceuticals' precursors and active ingredients;
• develop or produce medical devices as defined under German medical device law that are intended for the diagnosis, prevention, monitoring, prediction, prognosis, treatment or relief of life-threatening and highly contagious infectious dis-eases;
• develop or produce in vitro diagnostics as defined under German medical device law that serve to provide information on physiological or pathological processes or conditions or to indicate or monitor therapeutic measures in connection with life-threatening and highly contagious infectious diseases;
• develop or produce personal protective equipment as defined in Article 3 no. 1 of Regulation (EU) 2016/425 of the European Parliament and of the Council of 9 March 2016; and
• provide services that are necessary to ensure the uninterrupted functioning of state communication infrastructures as defined in § 2 para. 1 sentences 1 and 2 of the Digital Radio of Security Authorities and Organisations (BDBOS) Law.

In contrast to the Ministerial Draft of the BMWi (see our related Client information), certain components, preliminary products, manufacturing facilities, manufacturing technologies, and the extraction and processing of critical commodities are not covered.

The BMWi must be notified promptly after a binding agreement is entered into regarding a notifiable acquisition. The proposed amendment of the Foreign Trade Act also provides for the introduction of an implementation prohibition for notifiable acquisitions. The legal transaction serving to implement the acquisition will only become effective following approval by the BMWi.

2. Specification of prohibition criteria

When reviewing whether an acquisition endangers public order and security, it is to be considered in particular whether:

• the acquirer is directly or indirectly controlled by the government (including government bodies and armed forces of a third country), in particular by virtue of its ownership structure or through the contribution of not insignificant financial resources;
• the acquirer has already been involved in activities that have adversely affected the public order or security of the Federal Republic of Germany or another member state of the European Union; or
• a substantial risk exists that the acquirer or persons acting on the acquirer's be-half have been or are involved in activities that would constitute certain criminal offences or administrative offences in Germany (including money laundering, fraud, bribery or corruption, breach of foreign trade regulations, etc.).

This specification will apply for both cross-sector and sector-specific investment review.

The proposed amendment of the Foreign Trade Act also provides for a reduction in the prohibition criteria. An anticipated impairment of public order or security is to be sufficient for prohibition.

3. Further amendments

The 15th FTO Amendment clarifies that an asset deal is subject to investment review. This includes the acquisition of

• discrete operating division of a domestic company or
• all essential equipment of a domestic company or of a discrete operating division of a domestic company that are necessary to maintain the operations of the company or of a discrete operating division.

The 15th FTO Amendment also clarifies that the direct acquirer is generally subject to the notification obligation, even if such acquirer is resident in the EU. In such a case, the non-EU indirect acquirer is nonetheless permitted to submit the notification as well. The notification must specify the acquisition, the acquirer and the domestic company to be acquired and must include a summary presentation of the business areas of the acquirer and of the domestic company to be acquired.