Italian FDI control: bumpy road for foreign investments following the "Pirelli case"?
18 July 2023
18 July 2023
On 15 June 2023, the Italian Government exercised its special powers in relation to the renewal of the Pirelli Group's shareholders agreement (SHA). The decision confirms that foreign investments by certain third-country investors may be subject to tighter screening when they concern strategic assets and may raise potential national security issues.
On 5 April 2023, China National Tire & Rubber Corporation Ltd. (part of the Chinese state-owned group held by Sinochem), Marco Polo International Italy S.r.l., Camfin S.p.A. and Marco Tronchetti Provera & C. S.p.A. notified the Italian Government of the renewal of the shareholders' agreement relating to the Pirelli Group.
Under Italian FDI rules (set out in Law Decree No 21/2012, also known as the Golden Power Law), the Italian Government has "golden" or special powers to approve investments. In principle, the mere renewal of an SHA which does not lead to a change in control of the relevant company is not included in the list of intra-group transactions in relation to which the Government can exercise its powers.
According to the press release, the Italian Government exercised its special powers in relation to the renewal of the Pirelli Group SHA to protect "the autonomy of Pirelli & C. S.p.A. and its management; the security of procedures; the protection of information of strategic importance; the know-how possessed by the company". The strategic asset in question was cyber sensors that can be implanted in tyres. The improper use of these sensors would entail particular risks for the confidentiality of users' data, as well as the possible transfer of information relevant to security.
The Italian Government has imposed a number of measures on Pirelli (see the Pirelli press release for further details). The measures include "a strategic industrial security clearance with limits on accessibility to information" and the establishment of an "autonomous organisational unit for security". For certain strategic decisions by the board of directors, a 4/5 majority is required: for example, this would prevent even the majority shareholder, Sinochem appointing Pirelli's CEO.
This case confirms that:
In this respect, the first appeal against a decision of the Italian Government concerning the prohibition by Chinese-owned group Syngenta of the integrated global seed production company Verisem, the Italian Council of State also clarified that the Italian Government has a high level of discretion in relation to FDI decisions.
The Pirelli decision also confirms that Italy is one of the most active jurisdictions on FDI screening. According to the Annual Report submitted by to the Italian Parliament on 5 July 2023, there has been a significant increase in the number of transactions notified under the Golden Power rules in recent years. Of the 608 transactions notified in 2022, more than half (314) transactions were excluded form the scope of the Golden Power rules, meaning that these notifications were made on a precautionary basis. The Italian Government exercised its special powers in relation to 8% of the cases (approximately 20 transactions).
In general, the Italian Government rarely prohibits transactions pursuant to the Golden Power rules. However, the Italian Government has taken an increasingly tough stance on transactions concerning Italian strategic assets (particularly where the transaction involves Chinese or Russian companies) following the Covid-19 pandemic. While only one transaction was blocked before 2019, there have been seven recent cases:
Notably, the Italian Government did not exercise its special powers in relation to earlier investments by Chinese companies in Italian businesses that likely concerned strategic assets / national security. For example:
It will be interesting to see whether the Pirelli case is a "one-off" or whether it paves the way for the Italian Government reviewing existing investments by Chinese (or other non-EU) companies in other Italian businesses that may probably be considered more strategic than "tyres". Similarly, it will be important to see whether new investments in Italy by Chinese, Russian or other non-EU countries will be blocked or made subject to significant measures to safeguard strategic assets and national security.
The lesson to be learned from the Pirelli case is that when considering a proposed investment, the future shareholders will have to carefully negotiate appropriate safeguard clauses to foresee the possible impact of FDI screening controls on the transaction.
With thanks to Nicolo Tucci of Ashurst for his contribution.