Clifford Chance

The German government introduced a new exemption from the closing prohibition for transactions which are conducted via a stock exchange.

Under the recent amendment to the German FDI regime, the closing of transactions via a stock exchange, which fall under the scope of the German FDI regime, will be exempted from the closing prohibition. However, the exemption is conditional upon certain pre-requisites.

First, such transactions must be notified to the German Federal Ministry for Economic Affairs and Energy "without undue delay". Second, and similarly to the corresponding exemptions in many merger control regimes, the purchaser must not exercise the voting rights until the German Ministry for Economic Affairs and Energy clears the transaction. Third, prior to clearance it is prohibited to forward to the purchaser information about the target which is of relevance for the security interests of the Federal Republic of Germany. If the German Ministry for Economic Affairs and Energy decides to prohibit the transaction, it has the power to unwind it, i.e. the purchaser will bear the risk of having to sell the shares below the initial purchasing value.

The amendment will lead to more legal certainty for foreign investors which intend to invest in a German publicly traded company. However, some pitfalls remain and it will be interesting to see to what extent the German Ministry of Economic Affairs and Energy is willing to be flexible in applying the new exemption.