Foreign Direct investment & Golden Power

Edited by the International Business Reorganizations (IBR) Team

Perspectives in the International Business Reorganizations

Foreign Direct Investment (FDI) – which are defined as investments made in Countries other than those where the center of the investor’s main activity is located – has systematically defined global trends in terms of capital mobility. In this context, and in compliance with global commitments, individual EU member states, and therefore Italy as well, have adopted – with some differences – control procedures (so-called FDI screening) aimed at regulating and protecting the ownership of business entities operating in sensitive sectors of potentially national interest such as defense, security, energy, transport, and technology.

With reference to the Italian discipline, the first control instrument was introduced by Article 2 of Law Decree No. 332 of 1994, which regulated the intervention of the Italian State through the so-called “Golden Share”. Subsequently, with the entry into force of Law Decree No. 21 of 2012, the “Golden Share” was replaced by the “Golden Power” instrument, which – like its predecessor but with a substantial regulatory evolution – granted special powers to the Italian government (e.g. specific conditions to the purchase of shareholdings; veto to the adoption of certain resolutions, opposition to the purchase of shareholdings) to be exercised for the protection of companies active in certain sectors considered strategic and of national interest. This instrument, most recently updated with the entry into force of Law Decree No. 21 of March 21, 2022 (and amended by Decree of the Prime Minister No. 133 of August 1, 2022, on “the regulation of coordination activities of the Presidency of the Council of Ministers preparatory to the exercise of special powers under the Golden Power”), introduced, among other things:

  • the extension of the perimeter of application of the Golden Power discipline, also in light of the effects of the war-related crisis in Ukraine, to other sectors such as medical and agri-food;
  • the definition of the “pre-notification” procedure, i.e., a communication to be sent to the Presidency of the Council of Ministers containing documents and information relating to the transaction to be put in place, in order to receive from the competent authority a preliminary assessment as to whether or not the Golden Power regulations apply;
  • the extension of the power of veto of the Italian government to any act and operation of the shareholders’ meeting or the companies’ administrative bodies, in the case of resolutions having strategic importance that entail, as a consequence: (i) changes in the ownership, control or availability of assets (including those involving the merger or demerger of the company, the transfer of the company or branches thereof or subsidiaries); (ii) the transfer abroad of the registered office, (iii) amendments in the corporate purpose; (iv) the dissolution of the company; (v) the amendment of clauses in the bylaws regarding the upper limit of share ownership, and (vi) the transfer of property rights or the use of material or immaterial assets.

Based on the regulatory context just outlined, on June 15, 2023, the Italian government exercised Golden Power over Pirelli & C. S.p.A. (for short, Pirelli) with reference to a particular project notified by China National Tire and Rubber Corporation, Ltd., a subsidiary of the shareholder ChemChina. Specifically, the notification concerned the use of “high-tech” sensors that could be implanted in the tires of motor vehicles, which would enable the real-time collection of a wide range of data, including the state of traffic and infrastructure, but also the geolocation of the vehicles themselves. In this context, the government recognized the strategic value of such sensors, as well as the risks that could have resulted from their misuse in terms of both national security and personal data protection. Hence, the government authority provided Pirelli with certain legal instruments aimed at preserving the industrial independence of Pirelli itself but also that of its management in certain decision-making processes (e.g., by providing qualified majorities of 4/5 for the adoption of certain resolutions).

This decision – whose developments regarding Pirelli administration are still uncertain – confirms not only that foreign investments by some third-country investors may be subject to stricter scrutiny when they involve assets considered strategic, but also that Italian FDI screening regulations also find application in relation to intercompany transactions and agreements that do not necessarily involve changes in the corporate structure. Particular care must therefore be taken in the structuring of reorganizational transactions and in the preliminary assessments underlying them, as Golden Power may also find application in transactions that at first glance do not appear to be among those requiring notification (or pre-notification) to the Italian government.

The IBR Team remains available for further study as well as for a more in-depth discussion of the topics covered above.

Operational appendix

The following are some questions that, while representing a purely illustrative list, it might be appropriate to ask before the execution of a given corporate transaction, it being understood in any case that it is advisable to involve attorneys specializing in the subject matter in order to perform an exhaustive and precautionary assessment:

  • Does the operation involve strategic sectors such as security or defense?
  • Does the transaction involve sectors that while not appearing at first glance to be strategic may fall under the umbrella of FDI screening (e.g., food; healthcare; media)?
  • Does the transaction have one or more cross-border elements?
  • What is the nature of the transaction (e.g., acquisition of 10% of the share capital, appointment to members of the administrative bodies)?
  • In which countries does the target company have activities (subsidiaries, assets, revenues, other presences)?
  • Who will be the beneficial owner (also Ultimate Beneficial Owner) once the transaction is finalized?
  • Does the operation involve the transfer of critical infrastructure such as IT?
  • Does the operation involve companies that perform services for government facilities?
  • Does either party have ownership, direct or indirect relationships with foreign governments?
  • Are there other reasons why the operation might be considered sensitive?

The International Business Reorganizations (IBR) Team remains available for any further details as well as for a more in-depth discussion of the topics mentioned above.

Paola Barazzetta

PwC TLS Avvocati e Commercialisti