Energy crisis, M&A and Golden Power

The energy crisis and the related rising of energy and natural gas prices are testing the resilience of many companies in this sector, some of which are already considering the possibility of leaving the market.

The Italian government and the European Union, which have been asked to collaborate in this challenge, that will determine the future of the entire Eurocentric area, have responded through various proposals, some of which have already been adopted, while others are still on the negotiating table of the European Council, such as, for example, a price cap measure.

Market players, which have achieved significant revenues in the recent years and which, nevertheless, do not see the future with confidence, are thinking about exiting their business and in doing so it may be useful for them to consider the instrument of Golden Power.

This institute was introduced for the first time in Italy with the Legislative Decree n. 21/2012 and provides the Italian government - and all the governments of the EU States that have adopted it in accordance with the European regulations (1) - with special interdictory and prohibitive powers, that can be adopted either in the defence and national security sectors, or in certain areas of activity defined as being of “strategic importance and interest”, such as the transport, communications and, indeed, the energy sectors (2). The condition for the exercise of Golden Power is the threat of serious harm to national interests, which the government has, namely, identified in the following cases:

• foreign direct investments (3): it refers to operations where foreign investors (4) (non-EU and, in the specific case of the energy sector, as will be seen below, also EU investors) carry out a transaction aimed at acquiring significant shareholdings, capable of gaining control of an Italian company and/or shareholdings above a certain threshold of relevance;
• merger operations (5), such as (i) merger or corporate demerger; (ii) business transfer abroad (or transfer of company branches), transfer abroad of the company’s headquarters, even if the company and its head office belong to a subsidiary of the strategic Italian company; (iii) modification of the corporate’s main activity; (iv) change of the articles of association; (v) dissolution of the corporate.

The European Union drafted the Regulation EU 2019/452 in order to control M&A operations carried out by foreign investors and to protect every European strategic company from foreign investors, who often receive financial assistance from their respective governments, differently from what happened in the European market where there is a general prohibition of State aid (article 107 TFUE).

This Regulation, published on the 9^th of March 2019, has been so important to prevent the risk of a fragmentation of the European market into many independent clusters, that could have been able to end the common market.

Especially now, the mentioned European rules are playing a pivotal role in not allowing foreign investors to take advantage of the economic instability of companies, including those in the energy sector.

The Regulation EU 2019/452 and the crisis caused, first, by the spread of Covid-19 and, now, by the direct consequences of the Russian-Ukrainian conflict have set the conditions for extending the application of Golden Power not only to the defence and national security, transport and telecommunications sectors, but also to the energy field (6), including, in particular, all the areas of gas and energy transport, at national level, or supply and dispatching, and those which are considered essential for the maintenance of the vital functions of health, security, economic and welfare of the population (7) (such as, for example, the supply of gas and energy to apartments, hospitals ...).

The reason of extending the area of application of this regulatory is reasonable because the main scope of the Golden Powers is to protect national companies and nowadays it is easier for them to be over taken by foreign investors.

In consideration of the regulatory framework, that we have just outlined, it is important to describe the administrative procedure set forth in the Legislative Decree n. 21/2012 that the Italian Government has introduced, in order to avoid an abusive use of the Golden Power.

In fact, energy companies must comply with an administrative procedure, in the event that they wish to complete one or more of the following transactions, which constitute events-requirements, in the presence of which the interested companies are obliged to inform the government, in order to allow the authority to verify if the activation of the Golden Power is appropriate or not:

• foreign direct investments, carried out by non-EU entities or persons, aimed at acquiring the control of the Italian company, pursuant to the Article 2359 of the Italian Civil Code, and/or when they have invested more than € 1 million into a company and the shareholdings grant them voting rights or a share in the capital of at least 10%;
• foreign direct investments, set by European investors, including those established in Italy, when they want to acquire shareholdings to such an extent that allow them to take the control of a strategic Italian company in the energy sector, in accordance to Article 2359 of the Italian Civil Code;
• M&A operations.

The mentioned administrative procedure is aimed at evaluating the opportunity of using the Golden Power and involves three different stages, depending on the operation-requirement that the company is planning to implement:

1.preliminary phase.

A company that decides to successfully complete M&A operations and to sell significant shareholdings, pursuant to Article 2359 of the Italian Civil Code, to a non-EU and/or to an EU company is obliged to notify this transaction to the Dipartimento per il Coordinamento Amministrativo, established at the Italian Council of Ministers, which carries out inter-ministerial activities, conducts the preliminary analysis of the operation, collects and communicates to the competent Ministries the relevant informations for the application of Golden Power, in accordance to Article 2 of Legislative Decree n. 21/2012.

The abovementioned obligation to notify such preliminary intention to carry out the operation-requirement must be satisfied by the energy company (i) in case of M&A operations, within the term of ten days from the adoption of the relevant decision or before its concrete implementation (see Article 2, Par. 2, Legislative Decree n. 21/2012); (ii) on the other hand, in case of shareholdings purchasing, the notification must be made by the acquiring party (and, if it is possible, it should be made jointly with the company whose shareholders are being purchased), within ten days after the sale (or before the Closing, or after that the parties have signed a purchase agreement, which contains all the relevant information).

If the interested parties do not respect these procedural rules, they have to face a very intense reaction of the law, because (i) in the first case, the decisions and the acts adopted are invalid, and the Government can also force the company to restore the previous situation. In addition to that, the Government can also inflict an administrative financial penalty of up to twice the value of the transaction and in any case not less than 1% of the turnover cumulated by the companies involved in that operation during the last financial year; (ii) in the second situation, the rights to vote, connected with the relevant shareholding, are suspended, and the buyer is ordered to pay the same administrative financial penalty as in the previous case.

2.investigation phase.

Once the Dipartimento per il Coordinamento Amministrativo receives the notification of the imminent operation, it has to transmit the communication to the Gruppo di Coordinamento, which also is established at the Italian Council of Ministers, but formed by the General Secretary of the Prime Minister and by the heads of the offices of the Ministries which are identified, case-by-case, as responsible for the procedure. At the same time, the Dipartimento per il Coordinamento Amministrativo sets a meeting, in order to identify the competent Ministry, that will direct the preliminary investigation phase and will formally propose to activate or not the Golden Power.

3.decisional phase.

The competent Ministry must transmit its decision on whether or not to exercise the special powers to the Department in order to permit this Office to draft the decree, that will be deliberated by the Council of Ministers, within the term of four days from the meeting of the Gruppo di Coordinamento and, in any case, at least fifteen days before the expiry of the deadline for the conclusion of the procedure, in according to Article 2, Legislative Decree n. 21/2012.

The parties and the parliamentary committees are immediately informed of the adoption of the decree, in which they could find also advice and recommendation written by the Ministry.

In fact, in case the Golden Power institute is activated, the Government could impose specific conditions and obligations on the parties: it could even forbid the transaction if the Government considers that there is a national interest to protect and the only way to handle that problem is to completely ban the operation.

Recently, our Parliament introduced the long-awaited pre-filing procedure, with Legislative Decree n. 133/2022 (published on the 9^th of September 2022 in the Official Gazette n. 211/2022). It consists in a preliminary communication that companies could notify to the Offices of the Prime Minister, when they are completing an operation and the applicability of the Golden Power regime is uncertain. This new procedure is set in order to arrive at a faster, preventive examination and - where possible - avoid incurring in the longer and more complex ordinary preliminary investigation.

In conclusion, it is important that the shareholders of the companies affected by the Golden Power's area of application, including energy companies, pay attention to the aforementioned rules, if they decide to exit the market, by divesting their holdings in order not to face transaction bans or penalties.

author: dott. Giacomo Bedeschi

ph: designed by Rawpixel

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(1) Article 26 TFUE.

(2) Legislative Decree n. 21/2012.

(3) Article 2, Par. 1, n. 1, Reg. UE 2019/452: Foreign direct investment means “an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity in a Member State, including investments which enable effective participation in the management or control of a company carrying out an economic activity”.

(4) Article 2, Par. 1, n. 1: “foreign investor” means “a natural person of a third country or an undertaking of a third country, intending to make or having made a foreign direct investment”.

(5) Article 2, Par. 2, Legislative Decree n. 21/2012.

(6) Article 2, Par. 1, lett. e), DPCM n. 179/2020, Article 1, DPCM n. 180/2020; Article 4 Reg. EU 2019/452.

(7) They must have an annual turnover of no less than € 300 million and have an average annual number of employees of no less than 250 (see Articles 2 and 3, DPCM n. 179/202).