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Italy May Expand Takeover Shield as EU Warns of Virus Exposure

March 25, 2020, 9:25 PM

Italy said it may broaden defenses against hostile takeovers as the European Union warned that the economic slump from the coronavirus pandemic could leave the bloc’s key industries vulnerable.

Prime Minister Giuseppe Conte said in a magazine interview to be published on Thursday that his government is reviewing so-called “Golden Power” protections and “is ready to defend our country’s industrial and business assets.” The idea would be to expand current Italian buffers beyond businesses deemed to be of strategic importance.

Meanwhile, the European Commission issued special guidelines on Wednesday to EU capitals on enacting new bloc-wide rules meant to prevent foreign direct investments from threatening national security.

Europe’s Investment-Screening Plan Clears Final Political Hurdle

The European legislation aims to protect “critical infrastructure,” including in the energy, transport, communications, data, space and financial industries. Set to take effect in October, the law also seeks to safeguard “critical technologies” such as semiconductors, robotics and artificial intelligence.

“The coronavirus crisis affects deeply the European economy and many companies are temporarily weakened,” said Ursula von der Leyen, president of the commission, the 27-nation EU’s executive arm in Brussels. “We need to take care of them. Some sectors are key for our security, public health and sovereignty.”

‘Strategic Autonomy’

The European economy is bracing for a deep recession this year as a result of the global health scare, which has prompted governments to impose restrictions on businesses and households normally reserved for wartime. Companies are suffering their worst financial hit in decades as demand plunges.

The bloc’s national leaders will hold a video conference on Thursday where they will cite a need for member countries “to exercise vigilance so as to ensure the EU’s strategic autonomy, during the crisis and afterward,” according to the draft of a summit statement seen by Bloomberg.

In its guidelines on the investment-screening law, the commission stressed the potential appeal to foreign suitors of medical businesses in Europe.

Member nations must be “particularly vigilant” to ensure that “the current health crisis does not result in a sell-off of Europe’s business and industrial actors,” the commission said. “Among the possible consequences of the current economic shock is an increased potential risk to strategic industries, in particular but by no means limited to healthcare-related industries.”

The EU rules on foreign-investment screening -- the first of their kind -- were driven by growing political unease over Chinese acquisitions. Without taking the ultimate power of approving deals away from individual member countries, the European legislation sets up a bloc-wide “cooperation mechanism” over foreign direct investment through a combination of data collection, information exchange and peer pressure.

A senior Italian opposition lawmaker earlier called for the government in Rome to extend takeover defenses to include banks, insurance companies and pharmaceutical firms, arguing these businesses had been made vulnerable.

Senator Adolfo Urso, vice president of the Italian parliament’s security and intelligence committee, told Bloomberg Wednesday that he’ll seek changes through amendments to the government’s decree for a 25 billion-euro ($27 billion) stimulus package that’s under discussion. He’ll also propose that state lender Cassa Depositi e Prestiti SpA be given powers to intervene in the market to “defend” historical brands and other national assets.

Reinforcing Defenses

“The pandemic means a recession for Italy, the country is extremely weak and we have to reinforce its defenses,” said Urso, a member of the right-wing Brothers of Italy party. He added that he’s confident his proposals will be approved by parliament. Current rules allow the government to block takeovers in the defense, national security, energy, telecommunications and other technology sectors.

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Extending the Golden Power rule to banks, however, isn’t needed, according to three people familiar with the country’s financial sector. Banks can only be bought by other lenders because hedge funds or others would need authorization from the European Central Bank they’d be unlikely to obtain, said the people, asking not to be named discussing policy deliberations.

Takeover bids from other EU banks are very improbable during the virus emergency, given the ECB’s recommendation that liquidity be used for lending, the people said. The scenario is similar for banks not supervised by the ECB, given the very high risk that the Italian economy faces a long recession and that non-performing loans will increase. After the emergency, reputational and economic risks will also make takeovers unlikely, the people said.

(Updates with details from EU guidelines in eighth, ninth paragraphs)

--With assistance from Nikos Chrysoloras.

To contact the reporters on this story:
John Follain in Rome at jfollain2@bloomberg.net;
Sonia Sirletti in Milan at ssirletti@bloomberg.net;
Alberto Brambilla in Rome at abrambilla8@bloomberg.net;
Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editors responsible for this story:
Ben Sills at bsills@bloomberg.net

Flavia Krause-Jackson

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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