The FDI Screening Regime And Its Potential Impact On M&A Transactions

• Published date: 04 September 2023
• Subject Matter: Corporate/Commercial Law, Government, Public Sector, M&A/Private Equity, Inward/ Foreign Investment, Terrorism, Homeland Security & Defence
• Law Firm: Wiersholm
• Author: Jarle Kvam and Georg Abusdal Engebretsen

FDI controls (Foreign Direct Investment Controls) are becoming relevant to an increasing number of transactions and jurisdictions. A change in ownership of companies or businesses that are operating within, from a national security perspective, critical infrastructure and/or security sensitive areas may require authorisation from the authorities in those countries where such activities are conducted.

Executive summary

In Norway, FDI is regulated by the National Security Act (the "NSA"). On 31 March amendments to the NSA were proposed by the Norwegian Government which are likely to be adopted and these amendments will increase the number of transactions that will be subject to filing requirements in Norway.

The fact that different countries have different FDI-regulations, which again are subject to frequent modifications, adds an extra layer of complexity. Certain countries uphold a mandatory duty to file, entailing a ban on the accomplishment (stand still) of the transaction if a notification to the national authorities is required. Further the authorities may impose terms and obligations (as a condition for approval) on the buyer and the target group that may limit the ownership rights that a buyer would otherwise expect to have after the completion of the transaction. Important to note is also that filing obligations also may be triggered by indirect transfers, meaning that a stand still obligation could be triggered abroad even if the acquisition of the ultimate target company or business takes place in Norway. The FDI regime covers acquisition of shares as well as assets.

In line with other public law notification requirements (for example pursuant to competition legislation and/or the new EU rules regarding foreign subsidies control; the Foreign Subsidies Regulation or FSR, which will come into force soon), also the FDI regulation could give rise to more insecurity around the completion of transactions and at what time the completion may take place.

This increased complexity in relation to regulatory approvals required for completion of transactions also requires market players to conduct a far more thorough analysis of both commercial and legal implications before signing a deal. First of all, for Norwegian entities in the target group it has to be clarified whether any of these entities has been subject to any decision from the authorities stipulating that they are subject to the NSA. Secondly, if the target group has ownership interests in foreign jurisdictions, a similar screening exercise needs to be conducted and it should be noted that even an ownership interest of (as low as) 10% in a foreign entity could trigger a filing obligation under FDI.

If the contemplated transaction is likely to trigger filing obligation(s), a buyer must thoroughly assess the consequences this might have in relation to the choice of, for example, pricing mechanism in the transaction documents (Locked Box versus Closing Accounts), interest mechanism related to purchase price payment, MAC clause, financing conditions and/or other reservations (CP's) that can protect against unexpected events in the target group in the waiting period between signing and closing. If the transaction is intended to be insured by a WI...