Countries across Europe are taking new actions to block foreign takeovers. Share prices have plummeted due to the public health crisis caused by COVID-19, which in turn is attracting opportunistic corporate raiders. Asian firms and funds are particularly active at this time, ready to use the market slump to gain financial momentum as the health crisis relaxes in Asia and proceeds toward the Western markets. Regulators are concerned that investors from China, Saudi Arabia and other countries will take advantage of the volatility and undervaluation of European companies across industries. In response, European governments are preparing measures to defend their companies that are, while struggling financially, also strategically important. Investors should be aware that countries are taking steps to safeguard underpriced domestic companies, and that accessibility to certain cross-border transactions may become limited as the long-term economic effects of the health crisis endure.
Some of Europe’s biggest economies have announced intentions to protect domestic companies by increasing their scrutiny of foreign investments. These tactics typically involve tighter regulation at the deal screening level, including closer attention to industry-specific transactions and relaxed thresholds for blocking cross-border investments entirely. Some measures have been implemented in direct response to the COVID-19 pandemic, but others are the result of long-planned reforms.
For example, Spain has approved a particularly strict new foreign investment screening regime for any investor outside the European Economic Area. Specifically, any investment of 10 percent or more in a Spanish company engaged in technology, energy, transportation, aerospace and defense, media or healthcare now requires prior government approval.