[Last updated: 1 January 2025, unless otherwise noted]

2.1 Main legal framework

The main rules and principles of German law relating to public takeover bids can be found in:

• the Act on the Acquisition of Securities and on Takeovers ("Takeover Act"); and
• several accompanying regulations, most importantly the Regulation Concerning the Contents of the Offer Document, the Consideration for Takeover Bids and Mandatory Bids, and Exemptions from Obligation to Publish and Launch a Bid ("Bid Regulation"), all of which entered into force at the beginning of 2002, but have been frequently revised.

The main body of the German takeover legislation reflects Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids ("Takeover Directive"). This directive was aimed at harmonizing the rules on public takeover bids of the different Member States of the European Economic Area ("EEA"). Be that as it may, the Takeover Directive still allows Member States to take different approaches in connection with some important features of a public takeover bid (such as the percentage of shares that, upon acquisition, triggers a mandatory public takeover bid on the remaining shares of the target company, and the powers of the board of directors). Additionally, the underlying company laws have only been harmonized to a very limited degree. Accordingly, there are still relevant differences in the national rules of the respective Member States of the EEA regarding public takeover bids.

2.2 Other rules and principles

2.3 Supervision and enforcement by BaFin

Public takeover bids are subject to the supervision and control of the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht or the "BaFin"). BaFin is the principal securities regulator in Germany.

BaFin has a number of legal tools that it can use to supervise and enforce compliance with the public takeover bid rules, including administrative fines. In addition, criminal penalties could be imposed in case of non-compliance.

BaFin also has the power to grant (in certain cases) exemptions from the rules that would otherwise apply to a public takeover bid.

2.4 General principles

The following general principles apply to public takeovers in Germany. These rules are partly based on the Takeover Directive:

1. all holders of securities of a target company of the same class must be afforded equal treatment. Moreover, if a person acquires control of a company, the other holders of securities must be protected;
2. the holders of securities of a target company must have sufficient time and information to enable them to reach a properly informed decision on the bid. The management board and supervisory board of the target company must give their views on the bid – in particular on price - and on the effects of implementation of the bid on employment, conditions of employment and the locations of the company's places of business;
3. the management board and advisory board of a target company must act in the best interest of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the bid;
4. the person or legal entity making the offer ("Bidder") and the target company must execute the offer expeditiously;
5. false markets must not be created in the securities of the target company, the Bidder company or any other company concerned by the bid in such a way that the rise or fall of the prices of their securities becomes artificial and the normal functioning of the markets is distorted;
6. a Bidder must announce a bid only after ensuring that they can fulfil any cash consideration in full, if such is offered, and after taking reasonable measures to secure the implementation of any other type of consideration (certain financing); and
7. a target company must not be hindered in the conduct of its affairs for longer than it is reasonable by a bid for its securities.

2.5 Foreign investment restrictions

Germany has long embraced foreign investment, imposing few limits on foreign investors and offering them the same rights and benefits as domestic acquirers. In light of a number of large investments that have led to increased wariness among the German public, particularly concerning Chinese investments, Germany has strengthened and continues to strengthen its foreign investment review laws through a number of consecutive reforms. A reform of the foreign investment restrictions in 2021 introduced 16 additional categories of business activities triggering a mandatory notification requirement in Germany. No additional categories triggering a mandatory foreign investment filing requirement have been introduced since. The categories then introduced particularly concern future and key technologies, such as artificial intelligence, robotics or autonomous driving. The voting rights thresholds differ depending on the German target's business activity and may generally be 10, 20 or 25%. Regulation (EU) 2019/452 (EU Screening-Regulation) entered into force in October 2020 and created a common EU-wide regulatory framework on foreign investment review, which the EU Commission intends to reinforce per a draft amendment regulation from early 2024. In its current form, the EU Screening Regulation obliges, among other coordination efforts, EU member states to take the impact of foreign investments on other EU member states into account when reviewing foreign investments. In 2023, the competent Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz) (BMWK) conducted 106 foreign investment reviews. This number rose sharply to 306 cases in 2021. In 2023, BMWK conducted 257 foreign investment reviews. In most of the acquisitions considered sensitive, the government managed to conclude contracts with the parties to deter potential threats deriving from foreign acquisitions.

In Germany, the Foreign Investment Review ("FIR") falls into two categories:

1. Cross-sector reviews (Sections 55-59 Foreign Trade and Payments Act - AWV); and
2. Sector-specific reviews (Sections 60-62 AWV).

(a) Cross-sector review

BMWK may investigate any direct or indirect acquisition of at least 10%, 20% or 25% of the voting rights in a German company by an investor outside the EU/EFTA, depending on the type of company. The 10% threshold applies to particularly sensitive companies, such as those operating critical infrastructure or sensitive digital technologies, but also includes certain media companies. In cases of circumvention, investors resident in the EU may also be reviewed. BMWK is entitled to investigate and potentially restrict transactions if they have a probable adverse effect (voraussichtliche Beeinträchtigung) on the public order or security of Germany or another EU member state.

The law provides specific guidance on the interpretation of the term "public order or security". A non-exhaustive catalogue of industry sectors illustrates whether the acquisition by foreign investors is potentially considered a threat to public order or security. These industries in particular – but by no means exclusively – relate to "critical infrastructure", i.e., an institution, facility or parts thereof that:

• belong to the energy, information technology, telecommunication, transport and traffic, health, water, nutrition, finances and insurance sectors; and
• are of great importance to the functioning of the community as their failure or impairment would result in serious supply shortages or considerable disruption of public safety.

Companies designing or modifying software for sectors that specifically serve the operation of critical infrastructures would also be caught. The non-exhaustive catalogue also includes media companies that contribute to the formation of public opinion, companies providing cloud-computing services, companies entrusted with the task of monitoring telecommunications or producing technical equipment in relation to this, companies producing components or services for telematics infrastructure, developers or manufacturers of certain technologies involving artificial intelligence, robot developers and manufacturers, and semiconductor manufacturers.

For all acquisitions of German companies that belong to the sectors specifically referenced in the catalogue by non-EU/EFTA purchasers, BMWK has to be notified about the acquisition.

Non-listed sectors do not fall under a mandatory notification requirement but can still be subject of an FIR.

Following the notification of the conclusion of the contract on the investment, typically the SPA, BMWK has a two-month deadline to initiate investigations. Transactions may be notified prior to the conclusion of the SPA on the basis of a term sheet for example – the two month period, however, only starts to run from the conclusion of the contract underlying the transaction. The start of the period furthermore hinges on the gaining of positive knowledge of the conclusion of such transaction, or, in cases where an offer within the meaning of the Takeover Act is made, of the publication of the decision to submit the offer by BMWK.

Should BMWK initiate a formal review process within these two months, it has four months to review the transaction and decide on potential restrictions. However, this four-month period can be extended on multiple grounds and also suspended - which is frequent in practice in the case of the conduct of contractual negotiations - and in individual cases can also be recommenced. There is a limitation period of five years to investigate if the Ministry claims that it was not aware of the conclusion of the contract unless the acquirer can prove otherwise. In the period during which the acquisition may be reviewed, the legal validity of the contract is subject to the condition subsequent of a prohibition by BMWK, i.e., it is legally effective but may become invalid if BMWK prohibits the transaction. In contrast, closing transactions (Verfügungsgeschäfte) are provisionally invalid and become valid only once the transaction is cleared pursuant or the respective review periods have expired.

In order to obtain legal certainty the investor can apply to BMWK for a certificate of non-objection. This certificate confirms that the acquisition does not impact on the public order or security. At the same time, this will reduce the deadline for initiating a review process from five years to two months because BMWK has through the application become aware of the acquisition. The clearance certificate is considered as granted if BMWK fails to open an investigation during that period.

The German government has only prohibited a few transactions to date. In 2018 for example, it prohibited the acquisition of Leifeld Metal Spinning AG by the Chinese company Yantai Taitai Manoir Nuclear Equipment Co., Ltd. In 2020, BMWK prohibited the acquisition of majority shares and almost all voting rights in the German IMST GmbH by the Chinese defense company Addsino Co. Ltd. China. The German government also prohibited the acquisition of Elmos Semiconductor SE, a semi-conductor chips production facility, by a Chinese investor in 2022.

Although not formally prohibited, in 2016 the acquisition of Aixtron SE by the Chinese Fujian Grand Chip Investment Fund LP failed due to a prohibition by the USA after a clearance certificate had already been granted in Germany. In 2018, the German government prevented the acquisition of 20% of the shares in 50 Hertz Transmission GmbH by the Chinese state-owned company State Grid Corporation of China by persuading Belgian shareholder Elia System Operator S.A. to exercise its right of first refusal in order to in a second step acquire the shares from the latter at the same price. In one case (the takeover of Siltronic by the Taiwanese company Global Wafers), the available period until the "drop dead date" in the takeover bid document expired without the transaction having been approved, Allegedly, this was because other approvals had been obtained only very shortly before that date.

(c) Sector-specific review

The sector-specific review applies to investments in German target companies that are active in the following sectors:

• Militarily export-controlled items, e.g. arms;
• defense technology;
• certain products with IT security functions; and
• defense-related facilities.

BMWK may investigate any acquisition of at least 10% of the voting rights or an equivalent degree of control in such a company by any investor outside of Germany. In cases of circumvention, domestic acquirers may also be reviewed.

Within the sector-specific review, BMWK reviews whether fundamental security interests of Germany are endangered. Such endangerment has to:

• be actual;
• be sufficiently important; and
• affect fundamental public interests (ordre public).

Even in the case of key industries it may generally not be presumed that a fundamental interest of the community — as laid down in the abovementioned ordre public clause — is generally and always affected. Each acquisition must be individually examined to look at its effect on supply to the population to determine if a fundamental public interest is affected.

Acquisitions subject to the sector-specific review must be notified in writing to BMWK by the purchaser. BMWK has a two-month deadline following the submission of the complete notification to intervene.

In this context, BMWK is entitled to:

1. prohibit the transaction;
2. issue instructions or orders that are conditional for the approval of the transaction; or
3. conclude a contract under public law to safeguard fundamental public interests.

There is a limitation period of five years if BMWK claims that it was not aware of the conclusion of the contract unless the acquirer can prove otherwise.