– –
In Chinese hands since September: Kitchen manufacturer Poggenpohl
Quelle: Poggenpohl
– –
Michael Keller, Managing Director of Keller & Coll., A Frankfurt consultancy for takeovers and mergers, describes the number of 37 Chinese transactions according to the Deutsche Bundesbank in 2019 as “completely meaningless” compared to the total number of 1,800 takeovers and mergers per year on average in this country.
Companies want more protection
Nevertheless, there is skepticism on the part of entrepreneurs. Around 70 percent of the companies surveyed in the 2018 IW Panel on the Future are in favor of measures that better protect Germany against takeovers from China. This applies if these are state-subsidized or target strategic, technologically important sectors.
According to Volker Treier, head of foreign trade at the German Chamber of Commerce and Industry (DIHK) in Berlin, almost 2,000 Chinese companies are active in Germany. The stock of Chinese direct investments at the end of 2018 was 5.1 billion euros – and has since “increased again, mainly through takeovers”.
According to the Bundesbank, “German direct investments in China in 2018 totaled around 92 billion euros. On the investment side from China to Germany, there is still a lot of room for improvement, ”says Treier.
Fear of state enterprises
To what extent do the Chinese pose a threat to Germany as an export location in this country? For Christian Rusche, “the positive effects” of Chinese purchases still predominate – after all, “investments create jobs here”. Negative effects could only arise if “Chinese state-owned companies are pushing so hard into the market” that “innovation and production are shifted to China”.
Lawyer Kai Neuhaus, partner at CMS Hasche Sigle in Brussels, hears from clients that they would like to sell to a Chinese buyer who “gives them more money than others”. The companies “perceive what is placed in politics as protection against a sale to non-EU foreigners as a disruption to their sales.”
Background: According to Neuhaus, the Foreign Trade Act and the Foreign Trade Ordinance say that every transaction in which a non-EU foreigner acquires at least 25 percent of a German company can be checked and prohibited if there is a risk to public order and security.
This investment review was “tightened up on July 17, 2020,” said Neuhaus. “For the first time real hurdles” have been introduced, namely a “ban on execution that is subject to prison sentence”.
Obligation to report for non-EU buyers
This always applies when a transaction has to be reported to the Federal Ministry for Economic Affairs and Energy (BMWI). According to Neuhaus, in “certain sectors” it is sufficient if a non-EU foreigner wants to acquire at least ten percent of the shares. The buyer must report it to the BMWI, and the transaction may “only be completed once the ministry has approved it”.
These include, firstly, critical infrastructures such as power grids, water supply, telecommunications and logistics and, since June, “Covid-19-relevant industries” such as vaccine and protective mask manufacturers.
In addition, there is also an obligation to notify “if a non-German wants to acquire at least ten percent of an armaments company,” explains the lawyer. Then he must report and “may only carry out the acquisition after approval”.
EY partner Yi Sun observes that in view of the tightened investment review, Chinese investors are “examining very carefully beforehand” whether a project could cause “problems with the approval”. In the case of German medium-sized companies that do business with China, she perceives “fewer reservations about a sale”.
The takeover expert Keller experiences that clients “prefer to sell elsewhere if there is an alternative”. The reasons for this are “tough negotiations” with Chinese buyers and their “earn-out models” when it comes to payment. “The investor pays two thirds of the price immediately,” says Keller, and “one third when certain profits and sales are achieved” in the next few years.
China’s market seals itself off
Finally, the question arises to what extent German companies can participate in Chinese companies. China’s market is considered to be relatively isolated from investment. CMS Hasche Sigle expert Kai Neuhaus says it is “now possible”, but “probably more difficult than the other way around”.
And why is there no compensation? It is open who could do that, said the lawyer. That “could only be achieved bilaterally or perhaps at some point at the level of the World Trade Organization.” However, the free movement of capital is good, and “it helps everyone if we allow foreign investments in Germany.”
It is not a “Like you me, I like you”, says Neuhaus, but the wiser one could also give in: “Even if we are not allowed to invest with you – if you want to buy from us and we see advantages, do it. “
– .
