In the last months of 2023 the Italian government strengthened its scrutiny over Foreign Direct Investments (FDI) involving Italian “strategic” companies, within the framework of the so-called Golden Power Rule introduced by Law 21 of March 2012 and amended in March 2019 by Decree 22, extending the Law’s coverage to 5G tlc networks. At present, the Law applies to companies active in the sectors outlined in the table below.
More specifically, under the government’s lens are now the guarantees backing the financial packages funding the acquisitions of those companies, i.e. pledges on purchased equity stakes.
If up to last year it was still doubtful whether the grant of a pledge should be notified to the government, while there was no question as regards its enforcement, now there is growing consensus that event the grant and the extension of a pledge must be notified, as outlined in an Alert released last May 3 by White and Case international lawfirm.
“Previously, the customary view was that the FDI filing is mandatory only at the time of the pledge’s enforcement, particularly when the grant of the pledge does not entail any transfer of control over the company’s assets or voting rights” state White & Case’s experts in the Alert, adding that “the Italian FDI review primarily focuses on two types of transactions: (i) acquisitions of substantial equity interests in strategic Italian companies; and (ii) corporate transactions or actions that change the ownership, control, use or accessibility of strategic Italian assets or companies”.
The second type includes, among others, the “assignment by way of security” involving shares and / or assets of strategic Italian companies, such as a pledge and/or a mortgage. However, the Golden Power Law does not specify when the filing requirement is triggered (i.e., whether it occurs at grant of the security, at its enforcement, or at either stage). Additionally, it’s not clear whether any extension of the security interest in case of additional financial obligations triggers a filing obligation as well.
While there is broad consensus on the mandatory nature of the FDI filing at the enforcement of the pledge, various professionals in the market argue that the filing is not mandatory at the time of its grant or extension if the voting rights attached to the pledged shares remain with the pledgor. They argue that there is no change in the ownership, control, use, or accessibility of the pledged shares in these scenarios.
Based on the recent Italian Government’s interpretation of the Golden Power Law, any grant or extension (e.g., where secured obligations are increased) of a pledge over shares of strategic Italian companies would trigger the FDI filing requirement.
The pledgor is required to file within 10 days following the approval of the security by the pledgor and, in any case, before the pledge is granted. Breach of the filing requirement may lead to monetary penalties for the pledgor, up to a maximum of twice the transaction value and a minimum of 1% of cumulative turnover of companies involved in the transaction, and the unwinding of the pledge.
“There is no material change either in the Italian legislation or the Italian government’s attitude towards acquisitions of strategic companies and related financing. Of course, heightened attention is required when structuring a transaction, even with respect to any applicable security package, as the number of strategic sectors falling within the scope of the Golden Power review has significantly expanded over the last few years and the Italian government has increased scrutiny of pledges/security established over strategic assets. In addition, the number of acquisition and/or financing or refinancing transactions, often involving companies active in strategic sectors, has increased during the last few months and is expected to continue to do so in the near future” explains Tommaso Tosi, Counsel in charge of golden power-related matters at White & Case’s Milan office.
In other words, in addition to the usual notification to and approval from Italy’s and EU Antitrust Authorities and the other legal requirements, the closing of M&A deals concerning Italian bigger companies must now take into account also the Golden Power-related ones.
