I INTRODUCTION

Foreign investments (mainly, although not exclusively, by non-European Economic Area (EEA) entities)2 in a vast range of strategic sectors of the Italian economy are subject to a comprehensive investment control regime, whose general framework is set out in Decree Law No. 21 of 15 March 2012, as amended (the Law).

The Law grants the government certain special powers to veto or impose conditions on the purchase of interests in the share capital of, or the implementation of certain extraordinary transactions by, companies active in Italy in various fields considered strategic and of national interest, which include: defence and national security; 5G technologies; energy, transport and communications; and, as from April 2020, financial infrastructures, health and certain other sectors set out in Article 4(1) of the EU Screening Regulation.3

Although in recent years Italy has ranked behind certain significantly smaller economies in terms of the value of the net inflows of foreign direct investments,4 such investments still represent an essential part of the economy (according to World Bank research, in 2019, foreign direct investment net inflows amounted to US$29.221 billion).5 During the first years of its application, foreign investors did not appear to consider the Italian regime to be a deterrent to their proposed investments (in fact, the number of cases submitted to government scrutiny under the Law has consistently increased over the years).

However, investors' attitudes may change in the near future. Recently, as part of the emergency measures taken in connection with the covid-19 outbreak, the scope of the Law has been materially extended and the government's powers have been enhanced. More generally, it may be argued that there has been a marked change in the government's approach towards foreign investments. In turn, this may affect foreign investors' perception of the Law and their willingness to invest in Italy, particularly if the government were to take an invasive approach.

Indeed, as a result of the recent amendments, the Law may be developing into an instrument of economic policy, no longer focused only on protecting essential public interests underlying certain particularly sensitive and strategic sectors.

Whether the Law will evolve in that direction will of course depend on the government's implementing decisions in a post-covid-19 economic environment. In any event, the extension in the scope of the Law, coupled with the lengthier process determined by the 2019 reforms, will result in a heavier burden on foreign investors.

Foreign investments in Italy have traditionally involved a wide set of targets, from manufacturing industries to infrastructure. Headline transactions in the past two years involving sensitive sectors under the Law include:

  1. the 2018 acquisition of an 8.8 per cent interest in Telecom Italia by Elliott Management (the investment and activist fund) and subsequent appointment of the majority of Telecom Italia's board of directors as a result of a proxy fight with Vivendi SA (holding a 23.9 per cent interest in Telecom Italia);
  2. the 2018 acquisition by CK Hutchinson Holdings Limited of sole control over Wind Tre SpA (the Italian mobile operator) by acquiring the 50 per cent share interest therein held by Veon Limited (previously known as Vimpelcom Limited);
  3. the proposed spin-off of Telecom Italia's fixed-access network and related infrastructure into a separate company and its possible combination with the fibre-based access network that Open Fiber SpA (a joint-venture between ENEL SpA (the Italian multinational energy company) and CDP Equity SpA, a company of the group headed by Cassa Depositi e Prestiti SpA, the Italian state-controlled investment bank) is currently building across the Italian territory;
  4. the 2018 acquisition and subsequent delisting of EI Towers SpA (the Italian company owning and operating a large network of broadcasting towers and mobile sites across Italy) by 2i Towers SpA (a vehicle with participations held by F2i (Fondi Italiani per le Infrastrutture SGR SpA, the Italian infrastructure investment fund) and Mediaset SpA (the Italian mass-media group));
  5. announced in 2019 and closed in 2020, the partnership between Telecom Italia and Vodafone Italia SpA (the Italian subsidiary of the UK-based telecommunication conglomerate) regarding the joint development of their 5G networks and the combination of their respective passive tower networks through the merger of Vodafone's Italian tower subsidiary (Vodafone Towers SpA) into Inwit SpA (the company owning the Telecom Italia tower network, which as a result of the merger is controlled by Vodafone and Telecom Italian with a stake of 37.5 per cent each);
  6. the 2020 acquisition by Centurion Holdco Sàrl (a vehicle controlled by Bain Capital and NB Renaissance) of Engineering Ingegneria Informatica SpA (a company active in the field of digital transformation of public and private companies and organisations, developing and managing innovation in digital finance, smart government and e-health, augmented cities, digital industry, smart energy and utilities, and digital media and communication industries);
  7. the 2020 tender offer made by AGC Inc (a listed Japanese global glass manufacturing company, part of the Mitsubishi group and also active in the fields of electronic materials and products, commodity and performance chemicals, and life sciences) for MolMed SpA (a listed Italian biotechnology company active in the research, development, manufacturing and clinical validation of gene and cell therapy products for the treatment of cancer and rare diseases); and
  8. the 2020 acquisition of a 76 per cent interest in the share capital, and subsequent merger by incorporation, of DEPObank – Banca Depositaria Italiana SpA (a company active in the provision of securities and banking services) by Banca Farmafactoring SpA (a company active in the management and non-recourse factoring of receivables due to the public administrations).

II FOREIGN INVESTMENT REGIME

As a general rule, investments in companies active in Italy in certain fields deemed strategically important for the national interest are subject to a prior review procedure, as a result of which the government may exercise certain special powers that, depending on the target, may be more or less stringent.

The Law identifies four general categories of assets and activities with respect to which the government may exercise its special powers; however, it is for the government to determine periodically,6 in detail, which assets are subject to the investment regime established in the Law. The following are the categories of assets and activities contemplated by the Law:

  1. activities and assets deemed strategic for the defence and national security system (strategic security activities);
  2. networks, plants, assets and relationships deemed strategic for the national interest in the fields of energy, transportation and communications (strategic assets);
  3. broadband electronic communication services based on fifth generation technologies (5G activities); and
  4. financial infrastructures, health and other critical sectors contemplated under Article 4(1) of the EU Screening Regulation.

The government may exercise its special powers under the Law exclusively with respect to companies performing activities or holding any assets in these sectors. These powers, as well as the investment screening procedure and mechanisms, vary – in certain cases substantially – depending on the sector concerned.

Accordingly, in principle, foreign investments in any other sector are not subject to any further general limitation or prior review, apart from the general reciprocity rules (see Section II.vi) and any applicable antitrust clearance.7 However, certain sector-specific regulatory authorisations may be necessary (see Section II.vii).

i Defence and national security

The review procedure and the government's special powers relating to investments in a company performing a strategic security activity in the defence and national security sector are particularly strict and apply to investments made by any person, regardless of nationality (including EEA individuals or entities).

Activities and assets deemed strategic for the defence and national security system, currently identified by Prime Ministerial Decree No. 108 of 6 June 2014 (the 2014 Decree), include activities falling within the remit of the Ministry of Defence8 and the Ministry of Interior.9

With respect to companies performing any such strategic security activity (or holding any such asset), in the event of a threat of serious prejudice to fundamental interests of national defence or security, the government may:

  1. impose specific conditions (relating to the security of procurement and information, the transfer of technologies and export controls) on the purchase of an interest in any such company;
  2. veto the purchase by any person (whether directly or indirectly, individually or jointly10), other than the Italian state or state-controlled entities, of an interest in the voting share capital of any such company that, given its size, may jeopardise defence or national security interests. In contrast to the ordinary rules applicable in other sectors, the size of the interest acquired by the investor does not need to give the latter control11 over the company concerned. Moreover, the acquisition of any interest in excess of 3, 5, 10, 15, 20 and 50 per cent of the share capital (regardless of whether the target company is listed on a stock exchange) is subject to the Law;12 or
  3. veto the adoption of, or impose conditions on, resolutions by the company's shareholders or board of directors relating to certain extraordinary transactions (such as merger, demerger, asset disposal, winding up and amendments concerning the corporate purpose or equity ownership caps in the by-laws of certain state-controlled companies,13 or relating to the transfer of ownership or other rights on assets or the creation of encumbrances on assets).

ii 5G technologies

Growing concerns over national security related to the introduction and utilisation of 5G technologies have resulted globally14 in enhanced government scrutiny of foreign investments (and alleged interference) in this crucial field. In the wake of this international trend, on 25 March 2019 the Italian government adopted Decree Law No. 22 (the 2019 Decree, which Parliament ratified with amendments through Law No. 41 of 20 May 2019), expanding the scope of the Law to include broadband electronic communication services based on 5G technologies.

Although the Law qualifies the field of broadband electronic communication services based on 5G technologies as part of the strategic activities in the defence and national security sector, the rules applicable to foreign investments are substantively and procedurally different. In particular, pursuant to the amendments introduced by the 2019 Decree, the Law now requires any Italian company acquiring 5G-based assets or services to notify the government about the execution of contracts or agreements with non-EEA entities concerning:

  1. the purchase of assets or services regarding the design, manufacturing, maintenance and management of networks relating to broadband electronic communication services based on 5G technologies; and
  2. the purchase of high-tech components instrumental to the building or operation of networks relating to broadband electronic communication services based on 5G technologies.

In particular, in the event of a threat of serious prejudice to the fundamental interests of national defence or security, the Italian government may veto, or impose specific conditions on, the signing and performance of such contracts or agreements. The government may also order the parties concerned, at their own expense, to restore the situation that preceded the entry into and performance of the contract or agreement.

As noted above, pursuant to the amendments introduced by the 2019 Decree, the government may exercise its special powers only in relation to contracts or agreements entered into with non-EEA entities. This is a significant departure from the general rule applicable in the fields of defence and national security, where instead the government may exercise its powers regardless of the nationality of the investor.

A non-EEA person or investor is defined as: (1) any individual or entity whose residence, habitual abode, registered office, headquarters or centre of main interest is not in a Member State of the EEA, nor established therein; (2) any entity whose registered office, headquarters or centre of main interest is in a Member State of the EEA, or is however established therein, but is controlled, directly or indirectly, by any individual or entity that is not resident nor has its habitual abode, registered office, headquarters or centre of main interest in any Member State of the EEA, nor is established therein; and (3) any individual or entity whose residence, habitual abode, registered office, headquarters or centre of main interest is in a Member State of the EEA, or is however established therein, for the purpose of circumventing the application of the Law.15

iii Energy, transport and communications

Under the ordinarily applicable rules, the investment regime relating to strategic assets in these fields is less burdensome than that applicable to defence and national security. Not only is the scope of the government's special powers more limited and subject to more significant conditions, but, according to the Law,16 the overall regime applies only to investments made by non-EEA persons.

The government identified these strategic assets by means of the Decree of the President of the Republic No. 85 of 25 March 2014 (the 2014 Regulation). This 2014 Regulation identifies certain energy, transport and communications infrastructures (such as the national electricity grid, the telecommunications fixed-line and gas transport networks), but not the relevant service providers17 (i.e., those entities authorised to provide the related services).18

Transactions relating to a strategic asset are subject to prior review by the government, which as a result may:

  1. veto any resolution, action or transaction by a company holding any strategic asset19 that would result in a change of ownership, availability or control of the asset,20 provided that the change of ownership, control or availability could cause an exceptional situation whereby the public interest relating to the safety and operation of any strategic asset could be materially jeopardised, and the exceptional situation is not addressed by any relevant domestic or European legal provision;21 and
  2. make the purchase by any non-EEA investor of a controlling interest (whether individually or jointly) in a company holding any strategic asset conditional upon the investor undertaking certain commitments aimed at protecting the above-mentioned public interests. The government may even veto such transactions in the event that the acquisition raises an exceptional threat of a material prejudice to the public interests (which cannot be addressed by commitments undertaken by the investor).

Pursuant to government regulation No. 86 dated 25 March 2014, which governs the review process in the fields of energy, transport and communications (the Review Regulation),22 the government could exercise its special powers under point (a) above (i.e., in respect of a relevant resolution adopted, or a transaction carried out, by an Italian company holding a strategic asset in Italy) regardless of the nationality of the investor (i.e., even if it is an EEA investor), provided that the resolution or transaction results in a change of ownership, control or availability of the strategic asset. By contrast, an investment consisting of the acquisition of a controlling interest in the share capital of the company holding the strategic asset would be subject to the government's special powers only when the investor is a non-EEA person.

However, the Review Regulation would appear to be inconsistent with the overall regime applicable to the field of energy, transport and communications (where the government's intervention must be more limited in light of EU law principles) and to unreasonably discriminate against an investor acquiring ownership or control of a strategic asset through a corporate resolution of the target company or a transaction carried out by an Italian company, as opposed to an investor acquiring a controlling equity interest in a company owning a strategic asset. Not surprisingly, the exercise of the government's special powers in the context of the Vivendi/TIM case (see Section VII.iii) is currently being litigated in court on the basis of, inter alia, this discrepancy.

Similarly, the practice followed by investors (and the government) to date suggests that notification of relevant transactions or resolutions in the fields of energy, transport and communications has often been made even if the investor did not qualify as a non-EEA entity.23 The reason for this approach may perhaps be explained by the noted inconsistency between the Law and the Review Regulation, which may have led the investors or the corporate bodies of the relevant companies to take a more cautious approach and proceed with the notification, even though both the letter of the Law and the principles of EU law would justify dispensing with this formality.

Finally, under the emergency measures taken in connection with the covid-19 outbreak, this discrepancy has been temporarily overcome, albeit reinforcing the inconsistency with EU law principles. As discussed in Section II.v below, pursuant to amendments to the Law adopted in April 2020, until 31 December 2020 the acquisition of a company owning a strategic asset even by an EEA investor would be subject to the screening mechanism.

iv Other strategic sectors and critical infrastructures

Article 4(1) of the EU Screening Regulation provides that, in determining whether a foreign direct investment is likely to affect security or public order, Member States, and the European Commission, may consider its potential effects on certain sectors (the EU Screening Regulation Sectors), which include:24

  1. critical infrastructures, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructures and sensitive facilities, as well as land and real estate crucial for the use of such infrastructures;
  2. critical technologies and dual-use items as defined in point 1 of Article 2 of Council Regulation (EC) No. 428/2009,25 including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies;
  3. supply of critical inputs, including energy or raw materials, and food security;
  4. access to sensitive information, including personal data, or the ability to control such information; and
  5. the freedom and pluralism of the media.

Parliament previously sought to implement this provision of the EU Screening Regulation in 201926 by mandating the government to adopt a new regulation identifying additional assets in the categories under letters (a) and (b) of Article 4(1) of the EU Screening Regulation. However, the government did not adopt the proposed decree and, as part of the emergency measures taken in connection with the covid-19 outbreak, the Law was further amended to extend its scope to all the EU Screening Regulation Sectors (i.e., not just those under letters (a) and (b), but also letters (c) to (e)). In particular, Article 2, Paragraph 1 ter, of the Law now mandates the government to identify in detail, by means of a prime ministerial decree (the New Decree), the specific assets and relationships falling within each of the EU Screening Regulation Sectors, which, as a result, shall be considered of strategic national interest and in respect of which the government may exercise certain specific special powers. At the time of writing, the government has approved a draft New Decree (see Section VII.iv) and, as envisaged in the Law, submitted it to the Parliamentary committees for their opinion. Although there have been reports of this opinion having been issued, at the time of writing the New Decree has yet to be published in the Official Journal, therefore it is not yet in effect. Although the draft was published initially, the final text of the New Decree may contain changes. Notwithstanding the date of entry into force of the New Decree, the government can already exercise its powers over investments concerning companies active in any of the EU Screening Regulation Sectors. In particular, the Law was recently amended27 such that, until the New Decree enters into force, any acquisition of a company active in any of the EU Screening Regulation Sectors is subject to the screening mechanism set out by the Law.28 Therefore, pending adoption of the New Decree, the broad sectors of the EU Screening Regulation Sectors will apply, which is likely to result in an exponential growth in the number of transactions to be scrutinised; accordingly, the latest amendment to the Law has added limited specifications for the contents of those sectors: the financial29 sector includes the credit and insurance sectors; and the health sector includes the manufacturing, importation and wholesale distribution of medical, medical-surgical, and individual protection devices.

In the EU Screening Regulation Sectors (as will be further specified in the New Decree), the government may exercise its special powers in relation to two different categories of transactions, which, although not identical, correspond substantially to those in the energy, transportation and communications sectors:

  1. the acquisition by a non-EEA investor of a controlling interest in the share capital of any company holding a strategic asset or performing a strategic activity in the relevant sector; and
  2. certain corporate resolutions, actions or transactions by the relevant company resulting in a change of ownership, control or availability of the strategic asset or a change in its application,30 provided that the change of ownership, control or availability of the strategic asset is in favour of a non-EEA investor.

This last clarification is particularly significant because the limiting of applicability to non-EEA investors is set out in the Law itself (rather than in a government regulation) and constitutes a significant departure from the government's powers in the energy, transportation and communications sectors; in these sectors, pursuant to the Review Regulation (and as discussed in Section II.iii), the government may also exercise its powers with respect to corporate resolutions, actions or transactions concerning a change of ownership, control or availability of strategic assets in favour of EEA investors. This discrepancy represents a further argument against the lawfulness of the provision in the Review Regulation and raises the issue of unjustified discrimination in the treatment of EEA investors on the basis of the relevant sector.

v Emergency measures adopted in connection with the covid-19 outbreak

On 8 April 2020, the government adopted Decree Law No. 23 (the Liquidity Decree), introducing urgent measures to cope with and mitigate the dramatic effects of the covid-19 outbreak on the national economy. These emergency measures also impacted the government's special powers to screen foreign investments in certain strategic sectors of national interest.

More specifically, the Liquidity Decree has extended the scope of the Law to new sectors (both temporarily and permanently) and also clarified that the government may initiate ex officio an investment screening procedure even in cases of breach of the notification obligation under the Law.

In particular, in addition to the extension to the general categories of the EU Screening Regulation Sectors (until the entry into force of the New Decree), the Liquidity Decree has expanded the scope of the Law, until 31 December 2020, to transactions that would normally not be subject to the Law. Specifically, this temporary extension authorises the government to exercise its powers over:

  1. any corporate resolution or transaction adopted by entities active or holding assets in any sector contemplated by the Law (including the EU Screening Regulation Sectors, and also as will be further specified in the New Decree) that results in a change of ownership, control or adoption of these assets;31
  2. any acquisition, including by EEA investors, of a controlling interest in the share capital of any companies active or holding assets in Italy in any sector contemplated by the Law, including the EU Screening Regulation Sectors (and as will be further specified in the New Decree);32
  3. any acquisition by non-EEA entities of interests at least equal to 10 per cent of the share capital (if the overall investment value is at least equal to €1 million) or exceeding 15 per cent, 20 per cent, 25 per cent and 50 per cent of the share capital of companies active or holding assets, in Italy, in any sector contemplated by the Law, including the EU Screening Regulation Sectors (as these will be further detailed in the New Decree).

Finally, the Liquidity Decree also provides that, until 31 December 2020, the strategic sectors include the agri-food sector and the steel sector. This provision, however, does not specify what these sectors consist of (details should be included in the New Decree).

For the same reasons discussed in Section II.iii with respect to the extension to EEA investors of the government powers in connection with corporate resolutions, the provisions in the Liquidity Decree authorising the government to screen investments by EEA investors in the energy, transport and communications sector, as well as in the EU Screening Regulation Sectors, appears inconsistent with basic principles of EU law. The fact that this extension is part of a set of emergency rules does not appear to be a suitable justification for this inconsistency, at least in the absence of any evidence to the contrary in specific cases.

vi Reciprocity

Pursuant to a general principle of Italian law,33 foreign persons (whether individuals or entities) are allowed to exercise any civil law right exclusively insofar as the reciprocity principle is complied with. In other words, in the event that an Italian citizen is prevented from exercising a specific right in the country of origin of the relevant foreign person, Italian law in turn prevents that foreign person from exercising the same right in Italy. Although the scope of this principle is very wide, in the context of foreign investments it seems to have been applied, in practice, exclusively to the purchase of real estate or the incorporation of a company, but not to the acquisition of an equity interest in an existing company.

The reciprocity principle is specifically restated in the Law, resulting in a significant limitation of the scope of the government's powers: the purchase by a non-EEA person of an interest in a company exercising any strategic security activity or holding any strategic asset is permitted exclusively on the basis of reciprocity conditions. This implies that, in the event that the government ascertains that there is a lack of reciprocity between Italy and the country of origin of the prospective investor, implementation of the transaction may not be permitted, regardless of any further consideration (including the economic desirability of the foreign investment and the absence of any significant prejudice to strategic interests). This provision can be contrasted with Article 25, Paragraph 2 of the Italian Antitrust Act, pursuant to which the Prime Minister, on grounds of essential national economic importance, may veto any concentration transaction notified to the Antitrust Authority by a company from a country that does not protect the independence of companies through legal provisions equivalent to the Italian Antitrust Act, or applies discriminatory rules or imposes conditions resulting in the same effects on acquisitions by Italian investors.

Finally, a reciprocity principle also applies to takeover bids on Italian companies whose voting shares are listed on an Italian regulated exchange. Generally, the passivity rule34 and breakthrough rule35 apply to prevent pre-bid or post-bid defences from undermining the success of a tender offer. However, in the event that the bidder would not be subject to equivalent limitations, the target company (or its shareholders) may apply the relevant defences.36 In other words, should the foreign bidder, in its capacity as target of a tender offer, be permitted by its domestic law to frustrate a tender offer, the Italian target (or its shareholders) may apply any pre-bid or post-bid defence provided under the target's by-laws or shareholders' agreements.

vii Sector-specific authorisations

As previously mentioned, depending on the investment target, foreign investments may be subject to specific additional review or authorisation processes conducted by sector-specific regulators.

The sectors in which such authorisations may be required include:

  1. banking, insurance and investment services;37
  2. telecommunications;38
  3. broadcasting;39
  4. gas networks;40 and
  5. electricity networks.41

Moreover, in certain fields the law sets limits on the acquisition of controlling interests by non-EU persons (for instance, as regards airline companies42 and television broadcasters).43

III TYPICAL TRANSACTIONAL STRUCTURES

Although no specific requirement is set under Italian law, typically, although not exclusively, foreign investments in Italy are carried out through an Italian or EEA corporate vehicle, depending on a number of factors (including tax considerations).

In theory, investing through an Italian or EEA company might also be considered for the purposes of complying with the above-mentioned reciprocity principles or to fall outside the scope of the government's review powers regarding strategic assets. However, in light of the recent revision of the definition of non-EEA person, if the ultimate foreign investor originates from a non-EEA country, such a structure would be insufficient if the investor is ultimately controlled by a citizen of, or a company whose registered office or headquarters are located in, a non-EEA country.

Foreign investments may be implemented through the acquisition of an equity interest in an Italian target, either individually or through a corporate or contractual joint venture with an Italian or other person. Provisions of Italian company law may be relevant to certain agreements between the foreign investor and other shareholders or joint venture partners, such as limitations on the term of shareholders' agreements44 or the obligation to launch a tender offer in cases of acquisition effected while acting in concert.45

No notable difference is established between a share purchase and an asset purchase deal by a foreign investor. With specific regard to the scope of the foreign investments review under the Law, the definition of strategic security activities or strategic assets is wide enough to trigger the application of the relevant provisions both in cases of acquisition of an equity interest and in those of ownership of a relevant asset (although, as noted, in the case of strategic assets, the regime would appear to be tighter if the investor seeks to acquire the asset, as opposed to gaining control of a company owning the asset). Similarly, the general reciprocity principle applies to both categories of transaction.

Finally, unlike other foreign investment control regimes, the Law does not exclude indirect acquisitions (i.e., acquisition of share interests in foreign companies with an Italian subsidiary owning a strategic asset or performing a strategic activity). There have been various cases in which the government was notified of a transaction of this kind and reviewed it as if it were a direct investment, thereby implying that the transaction was subject to the Law.46 Accordingly, the above considerations on the structure of the transaction may also need to be articulated in light of the applicable law of the target company, if this is not an Italian entity.

IV REVIEW PROCEDURE

Notification of foreign investments falling within the scope of the government's special powers outlined in Section II must be made in advance to the government.

The general rules of the review procedure are set out in the Law, with implementing provisions spelled out in the Review Regulation (relating to energy, transport and communications), Government Regulation No. 35 of 19 February 2014 (relating to defence and national security) and the subsequent Prime Ministerial Decree dated 6 August 2014. As mentioned earlier, with respect to the assets included in the EU Screening Regulation Sectors, the New Decree has not yet entered into force (although we expect that the Review Regulation will apply – possibly amended to clarify its inclusion of these new sectors).

i Process

In all strategic sectors, the Law requires that the following be filed47 with the government:

  1. notification of any relevant corporate resolutions adopted, or actions or transactions carried out, by a company exercising any strategic security activity or holding any strategic asset within 10 days and, in any event, prior to their implementation;48
  2. notification of any purchase of interests in any company exercising any strategic security activity or holding any strategic asset within 10 days of the acquisition.49 Purchases of equity interests in a company active in the fields of defence or national security trigger the notification obligation if they exceed the thresholds of 3, 5, 10, 15, 20, 25 and 50 per cent (see also Section II.i); 50 and
  3. notification51 of any agreement relating to 5G assets or services within 10 days of signing.52

The notification must be made through ad hoc forms issued by the government53 and filed by means of certified email.

The review procedure is coordinated by the Department of Administrative Coordination (a specific government department within the Prime Minister's Office),54 which is assisted by a 'coordination group' composed of representatives of the ministries involved in the review procedure and, where necessary, members of other bodies (including private organisations) whose competence is required for a deeper understanding of the issues and interests.

Upon receipt of the notification, or as of the date on which the government ascertains a breach of the notification obligation (if it opts to proceed ex officio with the investment review), the government carries out its screening procedure, whose duration varies depending on the strategic sector involved. In all strategic sectors (other than 5G technologies), the government has 45 days55 to conduct its review, whereas in the 5G technologies sector, the process rules are slightly different. For the 5G sector, this term lasts only 30 days and may be extended by an additional 20 days if a deeper analysis is required to assess possible vulnerability factors that may undermine the integrity and safety of the networks and data transmitted through them; the extension may in turn be extended once, for a further 20 calendar days in cases of particular complexity. If the original notification is incomplete, however, the initial review term starts only once the missing information or document has been provided.

In all cases (i.e., including in the 5G sector), the initial term may be suspended only once, for a period of up to 10 days, if the government requests additional information from the notifying entity, or for a period of up to 20 days if the government requests additional information or makes enquiries with third parties (e.g., public authorities). Any additional requests to the investor or third parties do not suspend the term.

Moreover, once the EU Screening Regulation enters into force (11 October 2020), as part of the cooperation mechanism set out in Article 6 thereof, the term of the screening procedure may be further suspended if the European Commission or another Member State informs the government that it intends to provide comments or issue an opinion regarding the relevant transaction.56 The suspension ends when the opinion is received by the government (which must receive it within 35 calendar days of the day on which it informed the European Commission and other Member States of the start of the screening). Similarly, the term is suspended if the government requests the European Commission or another Member State to make comments or issue an opinion on the proposed investment.

During the review period, the ministry in charge of the initial assessment carries out its review of the proposed investment, action, resolution or agreement and, taking into account the work of the coordination group, formulates a proposal to the Presidency of the Council of Ministers (and a draft of the related government decree). To this end, the Law expressly provides that certain sector-specific public authorities57 must cooperate with the coordination group to facilitate its task, including by providing the necessary information (which they may not withhold on secrecy grounds).

The subsequent decree, whereby the government exercises its special powers, must specify the conditions or requirements imposed on the investor, the criteria and mechanics for monitoring compliance with the foregoing (including by identifying the specific administration) and the penalties applying in cases of infringements.

The effects that the review period has on the transaction vary on the basis of the strategic sector and depending on the type of transaction. Until completion of the review procedure, voting rights58 attached to the acquired interest of strategic companies are suspended, and transactions, actions and corporate resolutions that the strategic companies intend to execute may not be implemented or consummated.

By contrast, performance of this kind is not expressly prohibited in relation to 5G technology agreements, either before the notification or until completion of the screening process. However, after its review, the government may order the company that disposed of its strategic assets to unwind the transaction at its own expense.

In any event, during the review, no specific procedural standing or right of the parties involved in the transaction are expressly provided for by the Law (except for limiting the application of standard transparency rules to the proceedings).59 However, sound cooperation between the government and the notifying party is regarded as standard practice, possibly involving preliminary discussions prior to sending the formal notification,60 to allow the government to conduct its review properly and to make an informed decision by the statutory deadline.61

Moreover, should the government elect not to (or fail to) exercise its powers by the end of the standstill period, the proposed transaction may be legitimately carried out.62

As previously mentioned, the government's decisions must be adopted by a Prime Ministerial Decree; the decree may be appealed only to the Administrative Court of Rome.63

Finally, in the event of non-compliance with the government's decisions or failure to make the initial notification, the consequences vary again depending on the strategic sector and type of transaction. With regard to purchases of interests in the share capital of companies active or holding assets in a strategic sector, excluding the 5G technology sector, voting rights attached to the interests are suspended pending compliance with the prescription or obligations imposed by the government, and the resolutions adopted with the decisive vote of those shares, as well as the transactions implementing those resolutions, are null and void.

Moreover, the perpetrators of the breach are subject to administrative fines of up to twice the value of the transaction.64

If the government vetoes the acquisition but the acquisition has already been consummated, it may order the investor to dispose of the shares within one year.65 Pending the disposal process, the investor cannot exercise the voting rights, and resolutions adopted with its decisive vote are null and void. Transactions, actions or corporate resolutions adopted and implemented in breach of the Law are also null and void and the government may order the breaching entity or individual to unwind the transaction at its own expense.

Partially different sanctions apply to violations of prescriptions or conditions imposed by the government in relation to the signing of contracts or agreements relating to broadband electronic communication services based on 5G technologies. If the agreement has already been performed or is being performed at the time the government exercises its powers, the government may order the company that acquired the 5G-related product or service to unwind the transaction at its own expense. Moreover, if a company active or holding assets in the 5G technology sector breaches its notification obligation or fails to comply with the conditions prescribed by the government, it may be liable to a fine of an amount equal to between 25 and 150 per cent of the transaction value.66

ii Criteria

In an attempt to address the criticism expressed by the European Court of Justice in its 2009 judgment concerning the previous 'golden share' regime,67 the Law establishes certain specific objective criteria that the government must take into account as a condition to exercise its special powers.

In particular, in the context of the foregoing review procedure, the government must assess, inter alia:

  1. as regards companies exercising any strategic security activity, whether the economic, financial, technical and organisational characteristics of the prospective investor (including consideration of any financing conditions), as well as its business plan, are suitable to carry on the business regularly, safeguard its technological portfolios and honour existing contractual commitments;
  2. as regards companies holding any strategic asset, whether the situation resulting from the transaction (including consideration of any financing conditions) is suitable to guarantee the security and continuity of procurement, as well as the maintenance, safety and operations of the strategic asset;
  3. as regards acquisition of controlling stakes in companies holding any strategic asset, whether the transaction could jeopardise security or public policy (in this respect, the government may take into account whether the foreign investor is controlled by a public administration of a non-EU country, including its armed forces or as a result of significant public funding; whether the investor was involved in activities affecting security or public order of a Member State of the EU; or whether there is a serious risk that the investor engages in illegal or criminal activities); 68 and
  4. in all cases, the existence of any links between the prospective investor and third countries that do not respect democracy and the rule of law, or that maintain relations with criminal or terrorist organisations.

Finally, as part of the emergency measures adopted in connection with the covid-19 outbreak, the Liquidity Decree authorised the government to apply its special powers to the agri-food and steel industries69 until 31 December 2020, not only to safeguard the above-listed national interests, but also for the purpose of safeguarding employment and production levels in the Italian territory.

V FOREIGN INVESTOR PROTECTION

As a member of the European Union, Italy is subject to all provisions under EU law aimed at favouring the creation of a European common market, which include the four fundamental freedoms enjoyed by EU persons under the Treaty on the Functioning of the European Union (TFEU) (i.e., the free movement of goods, capital, services and persons). Any breach of these principles by Italian law or the Italian authorities may therefore result in the EU investor accessing an Italian court to seek annulment of the infringing measure, redress of damage suffered in connection therewith, or both.

Moreover, Italy is a signatory of the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which established the International Centre for Settlement of Investment Disputes (ICSID). Thus, since Italy is a party to a number of bilateral investment treaties, any dispute arising thereunder may be submitted to ICSID arbitration if the agreements so provide (or to other forms of dispute settlement provided for in the relevant treaty). However, on 6 March 2018, the European Court of Justice decided the Case C-284/16 Slowakische Republik (Slovak Republic) v. Achmea BV,70 holding that investor-state arbitration clauses in intra-EU bilateral investment treaties are incompatible with the EU Treaties. Accordingly, on 24 October 2019, certain Member States reached an agreement on a multilateral treaty for the termination of all intra-EU bilateral investment treaties between them. This agreement was formalized on 5 May 2020, when 23 Member States of the European Union, including Italy,71 entered into the agreement for the termination of intra-EU bilateral investment treaties.72

Italy is also a signatory to the 1958 New York Convention, the purpose of which is to ensure that arbitration agreements are recognised in Italy (i.e., litigation before national courts is prevented if contrary to the parties' agreement), and foreign arbitral awards are generally enforceable in Italy.

Finally, in 2013,73 Italy introduced a specialised section within several major courts74 focusing on business and corporate law matters. These specialised sections have also been assigned jurisdiction over any civil proceedings to which a foreign company is a party (whether as defendant or plaintiff). However, these specialised sections have no jurisdiction over disputes concerning application of the Law, as the Administrative Court of Rome has exclusive jurisdiction.

VI OTHER STRATEGIC CONSIDERATIONS

Situations in which foreign investments in sectors deemed strategic and critical entail the involvement of the government and need to be carefully considered, particularly in the post-covid-19 era. Obviously the Law seeks to protect interests other than the merely commercial interests that are generally addressed in a transaction between two private parties. In elaborating an acquisition strategy, this aspect needs to be borne in mind.

Despite the attempts of the Law to identify objectively and in detail the public interests and other criteria that the government must consider in reviewing a transaction, the assessment and decision-making process remain characterised by a significant degree of political discretion. Accordingly, an investor should consider whether the Law and the legal framework afford any means to effectively demonstrate why the transaction would not be inconsistent with the public interests addressed by the Law, and why it should therefore be cleared.

As mentioned previously, once notification of an investment has been submitted, the Law does not contemplate any formal involvement of the investor, and extends it no right to be heard before the decision is issued.

Further, unlike in other contexts (e.g., merger control), the Law does not contemplate an official pre-notification phase, although thus far the government's office has shown itself to be available to hold meetings and discussions before the investor makes the official notification.

Although formally the Law does not expressly contemplate this route, preliminary discussions may also form the context in which potential industrial commitments may be defined and then proposed by the foreign investor within the framework of the proposed transaction (for instance, regarding maintenance of certain employment levels, location of research activities and respect for international obligations) to preserve the interests underlying the exercise of the government's special powers and to facilitate final clearance of the investment.

Finally, as a result of the recent reforms (which, on the one hand have materially extended the scope of the Law, but on the other hand have arguably undermined the predictability of the rules through provisions that are not always entirely clear), approaching the government in a preliminary phase may also help the investor understand whether the transaction would be subject to the Law in the first place. In fact, in the past the lack of clarity on the actual scope of application of the Law often led investors to notify the government, even in cases where there would be valid arguments to conclude that a notification was not due. More importantly, in some of these cases the government did not reject the notification on grounds that it was not due, but rather concluded the process authorising the transaction, thereby implying that in its view the Law did apply in the specific circumstances.

In any event, it must be noted that the recent significant extension of the scope of the Law has resulted in a material increase in the number of notifications made to the government.75 In the future, this trend is likely to grow further. Accordingly, unless the structure of the government office in charge of scrutinising foreign investments is enhanced proportionally, the government might find itself to be unable to hold these informal talks with investors before notifications, at least not on a regular basis.

VII CURRENT DEVELOPMENTS

Given that it is now eight years since its inception, the Law can no longer be considered a new piece of legislation. On the other hand, it cannot be deemed a consolidated part of the Italian legal framework either, mainly because the numerous amendments it has undergone, particularly in recent years, have resulted in a set of rules whose content and emphasis are arguably quite different from the original ones.

The evolution of the Law and its practical relevance for foreign investments largely depend on the political sensitivity of the moment. In the first years of application, the framework designed by the Law seemed to play a secondary role in the government's toolkit of economic policy and, as such, did not appear to deter foreign investments (arguably, this was also due to its more limited scope at that time). By contrast, more recently the instruments provided by the Law, which have from time to time been enhanced, appear to have gained importance among the government's strategies. A trend that, incidentally, is shared among several other Western countries.76

There are various likely reasons for this development: the increasing role of Chinese investments, which has often been regarded as a threat to the technological know-how of the country; more generally, the growing (perceived) risks that, in certain cases, foreign investments pose to key assets and thereby to the security and stability of the country (as the Italian intelligence agencies recently publicly explained);77 the traditionally weak nature of Italian capitalism, particularly in connection with generational changes in the shareholding and management of the predominantly family-owned small and medium-sized undertakings; and, more recently, the disruptive impact of the covid-19 outbreak on the Italian (and global) economy, which, among other things, has depressed the valuation of companies (particularly those listed on the stock exchange), thereby exposing them to hostile takeovers or jeopardising their funding abilities. The latter of these effects could be addressed by equity injections from new investors, thereby possibly acquiring the right to interfere with management decisions.

In any event, according to public records,78 in most cases the government decided not to exercise its powers and stated it did not intend to take any specific action, or else it let the review term expire (thereby enabling the parties to complete the transaction). These statistics, however, are based on data collected only until 2018. More recently,79 this trend seems to have changed in that the number of cases where the government did exercise its powers has increased materially and is likely to grow further, especially in certain sectors (e.g., health or procurement of critical production factors– areas in which the European Commission80 has encouraged all Member States to exercise vigilance).

Regardless of the number of cases in which the government will actually exercise its powers, the scope of the Law has been extended so much (arguably, too much81) that the government review of foreign investments is increasingly being perceived not merely as a sectoral concern but rather as a structural, cross-sectoral element for consideration in devising transactions (in this respect resembling the relevance of antitrust assessments).

i Cases in which the government has exercised its special powers

On the basis of publicly available information, it appears that recently the government has exercised its special powers almost exclusively in the field of broadband electronic communication services based on 5G technologies.82

In particular, it appears that the government has vetoed a transaction only once, while in the other cases in which it exercised its powers it did so by imposing conditions and prescriptions on the transaction or its parties.

The only case in which the government exercised its veto power was the 2017 proposed acquisition of Next Ast Srl (a subsidiary of Next Ingegneria dei Sistemi SpA, and into which the latter had contributed its software and complex systems production unit) by Altran Italia SpA (the Italian subsidiary of Altran, the French innovation and engineering consulting group). On the basis of the 2019 Report, and given that Next Ast Srl performed services of a classified and strategic nature for the national defence and security system, the government vetoed the transaction to protect the essential interests of national defence and security.

Interestingly, in 2018, parent company Next Ingegneria dei Sistemi SpA (a company providing IT services and products in the industry sectors of defence, space, transportation and telecommunications, and a key supplier of Leonardo SpA, the state-controlled aerospace, defence and security company previously known as Finmeccanica SpA) was again involved in a transaction notified to the government under the Law, this time as a target. On this occasion, the government did not veto the transaction but imposed certain conditions and prescriptions83 in relation to the proposed acquisition by Defence Tech Holding Srl (a company active in the provision of technological solutions and innovative logistics to critical infrastructures).

As mentioned, in all other cases (some of which are outlined below) the government exercised its powers only in the form of prescriptions and conditions.

In particular, on 6 June 2013, the government84 exercised (for the first time) its special powers in the field of defence and national security, authorising the acquisition of the aviation business unit of Avio SpA by General Electric. On this occasion, the government imposed certain conditions on the acquirer, including ensuring continuity of certain activities,85 the appointment of Italian citizens to certain sensitive positions86 and certain industrial commitments.87 The government also provided for the constitution of a joint committee (whose members were designated by the government and by General Electric) entrusted with the task of verifying whether the conditions imposed by the government were complied with.88

On 18 April 2014, the government again exercised its special powers in the field of defence and national security by authorising the acquisition of control over Piaggio Aerospace SpA (formerly Piaggio Aero Industries SpA) by Mubadala Development Company (the Abu Dhabi-based national wealth fund). This authorisation was reported to be subject to certain conditions89 relating to the protection of technological and industrial know-how, continuity in production and certain strategic activities (particularly regarding remote control aircraft).

The government also authorised the privatisation of ENAV SpA (the Italian company providing air traffic control, flight information and aeronautical information services) by means of an initial public offering concerning up to 49 per cent of the company's share capital, on 10 June 2016, subject, however, to certain prescriptions concerning the integrity, accessibility and confidentiality of sensitive data.90

On 15 June 2016, the government resolved to make the sale of Ingegneria dei Sistemi SpA's 'GeoRadar' business unit to Hexagon Geosystems Services SpA (a subsidiary of Hexagon AB, the Swedish global technology group) conditional on the latter adopting various technical means to preserve the technological know-how, and other management and organisational solutions aimed at ensuring compliance with manufacturing, export, transport, use, tracing, registration and storing of the relevant technologies.

On 24 November 2016, the government imposed certain conditions on the previously mentioned acquisition of Avio SpA by Space 2 SpA, Leonardo SpA and In Orbit SpA, and its subsequent merger into Space 2 SpA. Among these conditions, the government particularly stipulated that, considering the strategic relevance of Avio's activities for national defence and security systems, the company's chief executive officer (CEO) must be an Italian citizen and may be appointed only after consultation with the government.91

Moreover, on 3 March 2017, the government authorised the transfer of the production of certain components used by the Italian armed forces from GE Avio Srl's plant in Rivalta (Italy) to another General Electric plant, in the United States. However, the government imposed specific conditions to ensure that the transaction would not undermine the strategic interests of the Italian state nor adversely affect the transferred production assets.92

On 19 October 2017, the proposed sale by Piaggio Aerospace SpA (the aerospace manufacturing company) of its 'Evo' (i.e., executive jet) business to PAC Investment SA (a Chinese state-backed consortium) was reported to have been subject to certain conditions and prescriptions93 imposed by the government.

On 7 June 2018, the government also exercised its powers by imposing certain conditions and prescriptions94 in relation to the resolution of the shareholders' meeting of Rete Telematiche Italiane SpA (Retelit) (a listed company providing data and infrastructure services to the telecommunications market, operating more than 12,500 kilometres of optical fibre infrastructure) of 27 April 2018, which appointed a new board of directors on the basis of the slate submitted by a consortium of three shareholders.95 Retelit challenged the decree whereby the government exercised its powers, on the grounds that, among other things: (1) it had notified the government of the resolution only for 'prudential and cautionary reasons' and that, in fact, it did not hold any strategic assets and, in any event, the resolution did not entail any change in the control of the company; and (2) the government exercised its special powers on the basis of an opinion on whether Retelit held any strategic assets, issued by the Italian Communications Authority (AGCOM), which Retalit believed lacked any jurisdiction for these purposes. The government, however, disagreed with the position taken by Retelit and on the basis of the opinion issued by AGCOM concluded that the Law applied to Retalit because it held strategic assets in the communications sector. Moreover, the government argued that the changes in the corporate governance of Retelit brought about by the resolution of the shareholders' meeting of 27 April 2018 through the appointment of a new board of directors had resulted in a change in the availability of the strategic assets, which in turn was likely to lead to changes in the company's organisational and strategic choices that could endanger network security, thereby threatening a serious prejudice to the national public interests under Article 2 of the Law. The government also imposed a fine of €140,137.150 on Retelit because the company had notified the resolution belatedly; interestingly, the amount of the fine was determined on the basis of the company turnover generated solely with the strategic assets, as opposed to the overall turnover.

Retelit appealed this decision to the Administrative Court of Latium in Rome, which on 24 July 2020 rendered the very first judgment concerning a matter under the Law. The Court annulled the government decision on procedural grounds, finding that the AGCOM officer who issued the opinion (namely, the Secretary General) lacked the authority to do so.96

On 8 August 2018, the government authorised Leonardo SpA to grant to Rohde & Schwarz GmbH & Co KG (a German company specialised in the fields of electronic test equipment, broadcast and media, cybersecurity, radio monitoring, radiolocation and radio communication) a licence to develop new radio transmission technologies;97 on that occasion, however, the government imposed certain specific conditions and prescriptions intended to ensure that the transaction would not undermine the Italian essential and strategic interests of defence and national security.98

On 18 April 2019, the government exercised its special powers in the fields of energy, transport and communications by imposing certain prescriptions99 in relation to the proposed acquisition of the 48.24 per cent stake held by Uniper Global Commodities SE (a German international energy company active in the business of generating, transmitting and distributing natural gas, electricity, water and district heating) in the share capital of OLT Offshore LNG Toscana SpA (the Italian company that owns and operates the floating regasification terminal located off the Italian coast between Livorno and Pisa) by First State SP Sàrl.

On 26 June 2019, the government exercised for the first time its special powers in relation to 5G technologies by imposing specific prescriptions100 on the agreement entered into between Fastweb SpA (the Italian provider of network telecommunications services) and Samsung Electronics Co Ltd (the South Korean multinational electronics company) for the design, supply, configuration and maintenance of software equipment relating to radio components and core networks necessary for the implementation of the 5G fixed wireless access network in the cities of Bolzano and Biella.

On 5 September 2019, the government again exercised its powers in the 5G technology sector in a handful of cases.101

On 7 July 2020, the government imposed prescriptions and conditions on various transactions regarding different strategic sectors contemplated under the Law. Most of these are particularly relevant as they concern the new strategic sectors introduced in April 2020 as part of the emergency measures taken in connection with the covid-19 outbreak. In particular:

  1. the government exercised its powers over the acquisition by AGC Inc (formerly Asahi Glass Co, Ltd, a Japanese global glass manufacturing company, part of the Mitsubishi group and the largest glass company in the world, also active in the fields of electronic materials and products, commodity and performance chemicals, construction materials and life sciences) and its subsidiary AGC Biologics Italy SpA of an interest in the share capital of MolMed SpA (an Italian biotechnology company listed on the Milan Stock Exchange and active in the fields of research, development, production, and clinical validation of gene and cell therapy products for the treatment of cancer and rare diseases). In particular, on 17 March 2020, AGC Inc. launched a €240 million voluntary tender offer on MolMed SpA. Initially, the tender offer was not subject to any condition precedent requiring the Italian government's clearance under the Law, as the latter did not expressly include the medical sector among the strategic sectors. This condition was subsequently introduced in the offering document published on 29 May 2020. On July 6 2020, the government authorised the transaction provided that the investor: (1) notifies the Minister of Economic Development of any agreement on the transfer of intellectual property that may be entered into between MolMed SpA and the companies of the AGC Group concerning, in particular, the treatment of acute myeloid leukaemia and multiple myeloma; (2) maintains its research and development (R&D) activities in Italy, including research laboratories and related production facilities; (3) maintains the employment levels regarding the personnel responsible for carrying out activities that are essential for the company's R&D activities; and (4) grants continuation of the current collaboration between Italian and European institutions.102
  2. The government exercised its powers in relation to the acquisition by Banca Farmafactoring SpA (an Italian listed company active in the management and non-recourse factoring of receivables due to the public administrations) of a 76 per cent interest in the share capital of DEPObank – Banca Depositaria Italiana SpA (a company active in the provision of securities and banking services) and subsequent merger by incorporation of the latter into Banca Farmafactoring SpA. The transaction was subject to various conditions precedent, including clearance from the government for the purposes of the Law. On 7 July 2020, the government authorised the transaction subject to certain (undisclosed) prescriptions and conditions. On 9 July 2020, FarmaFactoring SpA stated that these prescriptions did not constitute an impediment to the completion of the transaction and that therefore the condition precedent should be considered fulfilled.
  3. The government exercised its powers on the purchase of a 100 per cent interest in the share capital of Engineering Ingegneria Informatica SpA (a company active in the field of digital transformation of public and private companies and organisations, developing and managing innovation in digital finance, smart government and e-health, augmented cities, digital industry, smart energy and utilities, and digital media and communication industries) by Centurion Holdco Sàrl (a vehicle controlled by Bain Capital and NB Renaissance). The transaction was subject to various conditions precedent, including clearance from the government under the Law. On 7 July 2020, the government authorised the acquisition by imposing certain (undisclosed) prescriptions. The buyer apparently deemed that the prescriptions did not hamper the transaction, as the parties closed the acquisition a few days later.103

Lastly, on 15 July 2020, the government exercised its special powers in the communications sector by imposing certain (undisclosed) prescriptions in relation to the acquisition by the Ontario Teachers' Pension Plan Board (an independent organisation that administers defined-benefit pensions for school teachers of the Canadian province of Ontario, and one of the world's largest institutional investors) and others of the entire share capital of RSA Security LLC (a US computer and network security company), with consequent acquisition of the entire share capital of its Italian subsidiary RSA Security Italy Srl.

ii Cases in which the government decided not to exercise its special powers

As noted already, in most104 of the other disclosed cases in which the government was notified of a transaction under the Law, it resolved not to exercise its special powers, although seldom providing sufficiently detailed reasoning for the underlying decision. We set out some examples below.

On 23 October 2014, the government declared that it would not exercise its special powers in relation to the reorganisation of the infrastructure investments of Cassa Depositi e Prestiti SpA (a state-controlled holding company),105 entailing the transfer of its share interest in Terna SpA (the Italian electricity grid operator) to CDP Reti Srl (a subsidiary of Cassa Depositi e Prestiti SpA, which already held a controlling stake in Snam SpA, the gas transport infrastructure operator); nor would it exercise its special powers in the subsequent sale of a substantial minority interest in CDP Reti Srl to State Grid Europe Limited (a subsidiary of State Grid Corporation, a state-owned Chinese company). A government report submitted to Parliament on 23 December 2016,106 providing an update on the application of the Law, disclosed that the coordination group (i.e., the inter-ministerial office assisting the government in the review process) recommended that the companies involved in the overall transaction proceed carefully so as to ensure the functioning and security of energy procurement, the maintenance of network efficiency and the protection of confidentiality of sensitive data and strategic information held by CDP Reti Srl and its subsidiaries. However, the government decided not to exercise its special powers altogether, as it concluded it was not appropriate to impose restrictive measures on the transaction.

Similarly, on 29 April 2015, the government confirmed that it would not exercise its special powers under the Law in relation to the disposal of up to 40 per cent of the share capital of INWIT SpA (the company operating Telecom Italia SpA's wireless tower network) by means of an initial public offering. The government explained that its analysis found there to be no material issues regarding the envisaged transaction.107

In the course of 2015, the government was also notified of several transactions concerning the proposed construction of a subterranean natural gas storage facility in Italy. In each case, the government decided not to exercise its powers, although in the first situation it provided some limited indication as to the practical application of the criteria for the exercise of its special powers. Specifically, in the first instance, the government received a notification concerning a reverse merger by incorporation of Gestioni e Partecipazioni Srl (a company that, according to the press, was controlled by the Italian bank Intesa Sanpaolo SpA), Gestioni Partecipazioni Old Srl and Petren Srl into Ital Gas Storage Srl (the licensee for the construction of the gas storage facility). Then, on 30 June 2015, the government concluded that the storage activity was subject to specific EU provisions (regardless of the shareholding structure of the relevant operator) and therefore declined to exercise its special powers. A few weeks later, the government was also notified of a share capital increase of Ital Gas Storage reserved to Sandstone Holding BV (controlled by an infrastructural investment fund managed by Morgan Stanley, which was reported to be a non-EEA person); on 6 August 2015, the government decided not to exercise its special powers in respect of this transaction (no specific reasoning was provided). Finally, the government was notified that the construction of the gas storage facility would be carried out by means of a project financing transaction, whereby the lenders would be granted security interests upon certain (unspecified but presumably strategic) assets; in this case, on 23 December 2015, the government concluded that the public interest in the security and continuity of the functioning of the national natural gas system was adequately protected and again declined to exercise its special powers.

On 22 September 2015, the government decided not to exercise its special powers in relation to the creation of a joint venture between CK Hutchinson Holdings Limited and VimpelCom Ltd concerning their respective Italian telecommunications operations. This joint venture was followed by a merger between the parties' respective Italian telecommunications subsidiaries, namely H3G Italia SpA and Wind Telecom SpA. Upon clearing the creation of the aforementioned joint venture, the government provided some recommendations as to the information that the parties would have to include in the notification of the merger under the Law, which to some extent may be regarded as advance notice of the conditions that the merger should meet or be subject to. Among other things, the government recommended that the parties provide specific information on the strategic planning on business and investments, with particular regard to the effects of the transaction on the national territory, technology and employment, and indicated also that the proposed strategy should not result in the transfer abroad of management and security functions that could undermine national security and continuity of services. Similarly, on 2 August 2018, the government did not exercise its special powers in relation to the subsequent acquisition by CK Hutchison Holdings Limited of the exclusive control over CKH Luxembourg Sàrl (the corporate entity whereby CK Hutchison and VimpelCom (now VEON) had established the above-mentioned joint venture) and, therefore, of Wind Tre SpA (the Italian communications company resulting from the aforesaid merger between H3G Italia SpA and Wind Telecom Italia SpA). According to the 2019 Report, the government imposed the same recommendations issued in connection with the 2015 establishment of the joint venture. On 19 October 2017, the government also decided not to exercise its powers in the communications sector in relation to the project pursued by 2i Fiber SpA (a company controlled by infrastructure funds F2i SGR SpA and Marguerite) to create a communications business-to-business hub through the acquisition of Infracom SpA, MC-Link SpA and KPNQwest Italia SpA (which provide information and telecommunication technology services, including through their optical fibre network and data centres). Subsequently, on 8 August 2018, the government also decided not to exercise its special powers in relation to the acquisition by Irideos SpA (the company resulting from the merger of the above-mentioned entities into 2i Fiber SpA) of the entire share capital of Clouditalia Telecomunicazioni SpA (a company specialised in offering integrated telecommunications and cloud computing services).

On 10 April 2018, the government decided not to exercise its powers in relation to the acquisition by Leonardo SpA of the know-how relating to a naval transit security product owned by Orizzonte Sistemi Navali SpA (a joint venture between Leonardo and Fincantieri SpA, another state-controlled shipbuilding company), on the grounds that the transaction did not raise any specific risk.

Finally, on the same day, the government decided not to exercise its special powers in relation to the proposed acquisition by 2i Towers SpA (a vehicle with participations held by F2i (Fondi Italiani per le Infrastrutture SGR SpA, the Italian infrastructure investment fund) and Mediaset SpA (the Italian mass-media group)) of the exclusive control over EI Towers SpA (the Italian company owning and operating a large network of broadcasting towers and mobile sites across Italy).108

iii The Telecom/Vivendi case

Despite the major changes introduced by the recent reforms of the Law (in respect of which there is still limited guidance on the government approach), the Telecom/Vivendi case could still be regarded as an emblematic precedent and provide helpful indications on the government's attitude as regards the exercise of its special powers, including the extent to which political factors may influence government decisions.

Between 2015 and 2016, Vivendi (the French media conglomerate) progressively built a 23.9 per cent equity stake in Telecom Italia (the Italian incumbent owning the fixed-line telecommunications network and controlling two subsidiaries whose activities, according to the government, are included in the security and defence sector). In connection with the general meeting of Telecom Italia of 4 May 2017, which was convened to appoint the company's new board of directors, the candidate slate submitted by Vivendi won by a slight margin of votes and, as a consequence, Vivendi managed to appoint 10 of the 15 members of Telecom Italia's board of directors.109

Following the resignation of Telecom Italia's CEO, on 27 July 2017, the board of directors of Telecom Italia temporarily granted the relevant powers to its then chairman (who was (and still is) also Vivendi's CEO) and acknowledged that Vivendi had started to exercise powers of 'direction and coordination' over the company.110 This board resolution triggered significant criticism in the Italian media and among politicians, emphasising the perceived imbalance between the degree of exposure of Italian targets to potential takeovers relative to the challenges experienced by Italian companies investing abroad, particularly in France.111

In the wake of these discussions, on 2 August 2017, the government issued a press release stating that, at the request of the Ministry of Economic Development, it had opened an investigation into whether Telecom Italia was required to notify the government of the above-mentioned resolution acknowledging Vivendi's direction and coordination. In parallel, the government conducted an investigation into whether Vivendi's acquisition of its equity interest in Telecom Italia also required any notification to the government under the Law. Separately, on 4 August 2017, the Italian Securities and Exchange Commission requested Vivendi to clarify whether it exercised de facto control over Telecom Italia.112

Pending the investigation, Vivendi notified the government on 15 September 2017, for purposes of the government powers in the defence and national security sectors, of its equity interest in Telecom Italia above the relevant threshold, which Vivendi had acquired between 2015 and 2016. On 16 October 2017, the government concluded that Vivendi's acquisition fell within the scope of the Law, because Telecom Italia owns controlling interests in two companies performing confidential security activities on behalf of the government, namely Telecom Italia Sparkle SpA (a company operating 530,000 kilometres of optical fibre cables, including major submarine cables) and Telsy Elettronica e Telecomunicazioni SpA (an information communications technology security solutions and service provider). The government further found that Vivendi's equity interest raised a threat of serious prejudice to the essential interests of defence and national security and resolved to exercise its powers. In particular, the government imposed conditions and prescriptions on the governance of Telecom Italia, Telsy and Sparkle, intended to ensure, among other things, the independence of the corporate functions related to national security,113 the appointment of qualified Italian citizens to certain sensitive positions,114 the maintenance on the Italian territory of certain activities115 and to ensure that certain activities are adequately developed;116 the government also imposed the creation of a monitoring committee composed of government representatives to oversee compliance with the prescriptions set out in the decree.117 On 13 February 2018, Vivendi filed an administrative appeal against this government decision, which however the Council of State dismissed on 13 November 2019.118

Similarly, on 10 October 2017, Telecom Italia notified the government of the aforementioned shareholders' resolution of 4 May 2017, electing a new board of directors, and board resolution of 27 July 2017, which acknowledged that Vivendi had started exercising direction and coordination powers over Telecom Italia. As a result, on 2 November 2017, the government exercised its powers under the Law, although this time in connection with the strategic assets that Telecom Italia holds in the communications sector. In particular, the government found that Vivendi had acquired control of Telecom Italia and, in light of the 'different industrial mission' pursued by Vivendi, this could cause changes in the organisational and strategic choices made by Telecom Italia that would be relevant to the functioning and security of the fixed-line telecommunications network and thereby could seriously undermine the public interest protected by the Law. Accordingly, the government imposed on Telecom Italia the adoption of suitable industrial commitments119 and an obligation to notify proposed transactions involving strategic assets;120 the government also provided that the same monitoring committee created in connection with Vivendi's notification be also granted the power to monitor compliance with this additional set of prescriptions. Telecom Italia has filed an administrative appeal against this government decree.

On 8 May 2018, the government issued a €74.3 million fine to Telecom Italia for failing to notify the adoption of the resolutions punctually. The government determined the amount of the fine with reference to the aggregate turnover of Vivendi and Telecom Italia exclusively in relation to the relevant strategic assets in the telecommunications sector; in other words, it did not consider the entire turnover of both companies (as a literal reading of the Law could suggest) but only a portion (€74.3 million was reported to correspond to 1 per cent of the relevant turnover).121 Telecom Italia has appealed this government decision to the Administrative Court of Latium in Rome, which on 4 July 2018 and then on 23 May 2019 temporarily suspended the fine, pending a decision on the merits. Moreover, Telecom Italia also challenged the government's decision imposing the aforementioned prescriptions on the company, by means of an appeal to the Council of State (Italy's supreme administrative court), where the matter is currently pending.

In a press release Telecom Italia issued on 8 May 2018, it argued that the qualification of the relationship between Vivendi and Telecom Italia was irrelevant for the purposes of Telecom Italia's notification obligations under the Law and that these are governed by a provision that is different from that referred to in the government's decision. This line of argument would seem to suggest that Telecom Italia agreed with the argument made in Section II.ii (i.e., that the Review Regulation appears inconsistent with the Law and that the government's approach appears to lead to discriminatory results regarding transactions involving the acquisition of a strategic asset implemented through the acquisition of shares (which plainly falls outside the scope of the Review Regulation, at least under the ordinary rules) as opposed to resolutions adopted by companies holding the same strategic asset).

Moreover, this enforcement approach, to the extent that it is applied outside the security and defence sectors, would be likely to infringe the TFEU.

iv Expected future developments

Over the past few years, calls were made on a number of occasions to enhance the legal framework devised by the Law, including by extending its scope of application.122 In the past two years, these petitions have eventually been substantively addressed by the government (and confirmed by Parliament) with material amendments to the Law. Equally significant changes are expected shortly.

In particular, by means of the 2019 Decree, the government sought to expand the scope of the government's powers to investments in 5G technologies. This extension was regarded as a meaningful attempt by Italy to address growing concerns over the threat posed by certain foreign investments in the fields of defence and national security. More specifically, the changes to the Law introduced by the 2019 Decree represented an initiative intended to address the strong concerns expressed by certain institutions and Member States of the European Union, as well as US officials, in relation to Italy signing up to China's Belt and Road Initiative in March 2019. Not surprisingly, according to a recent survey, 123 in all cases in which a 5G transaction was notified to the government, it exercised its powers under the Law (in the form of prescriptions).

Moreover, the enhancement and extension introduced in connection with the covid-19 outbreak (see Section II.iv and Section II.v) are a further step towards a substantive reconsideration of the balance and goals of the Law. Originally devised as a set of instruments to protect relatively well-defined strategic interests in specific sectors of the national economy, the Law has been transformed by the recent amendments into an almost all-encompassing framework granting the government the power to intervene in the majority of mergers and acquisitions and similar transactions carried out in the country.

This new paradigm will survive the unprecedented circumstances behind it (i.e., the covid-19 outbreak). More specifically, unlike other emergency provisions that will cease to be applicable at the end of 2020, the extension of the strategic sectors to the general categories contemplated in the EU Screening Regulation will be specified and confirmed by the upcoming New Decree, which will become a permanent feature of the overall legal framework, subject only to an update of the list of assets every three years.

Although the New Decree has the obvious merit of clarifying, to a large extent, the contents of the EU Screening Regulation Sectors, the government seems to have taken a particularly broad approach, especially with certain catch-all provisions which, in fact, largely undermine both the detailed indication of the specific assets and, more generally, the clarity and predictability of the New Decree. More specifically:

  1. The New Decree introduces an official definition of critical infrastructure, to which the EU Screening Regulation also makes reference, substantively borrowing it from Council Directive 2008/114/EC of 8 December 2008 on the identification and designation of European critical infrastructures. These are defined as 'essential infrastructures for the maintenance of vital functions of society, health, securing and the economic and social wellbeing of people'.124 As such, however, this definition appears to set a rather vague threshold of relevance and, therefore, is unlikely to work as an effective filter or to clarify when a notification is due with respect to any transaction.
  2. The New Decree should concern the following sectors: energy, water, health, data protection, electoral infrastructures, finance (including credit and insurance), high-tech (artificial intelligence, robotics, semiconductors, cybersecurity, nanotechnologies, biotechnologies), non-military aerospace infrastructures and technologies, procurement of production factors in the steel and in the agri-food sector, and dual-use products.
  3. Although the mentioned sectors partly overlap with certain of the pre-existing sectors (namely, energy and defence and national security), the details of the draft New Decree seem to exclude this overlap; in particular, the new assets in the 'energy' sector seem to be in addition to, and not in conflict with, those already listed in the 2014 Regulation;125 likewise, the assets in the 'aerospace' sector should differ from those identified in the 2014 Decree among the defence and national security field.126 In any event, the explanatory report attached to the draft New Decree clarifies that in the event of overlap the 2014 Decree and the 2014 Regulation shall prevail (i.e., the relevant assets shall be deemed part of the strategic assets of defence and national security (see Section II.i) or energy, transport and communications (Section II.iii) and the respective procedural rules (including the types of powers that the government may exercise) shall apply to the relevant investment or resolution.
  4. Although it is not possible here to provide a complete list of the assets envisaged in the draft New Decree, certain new sectors deserve a more detailed description, given the innovative nature of the relevant sectors and expected impact on potential investments. These in particular comprise the financial sector (which should include stock exchange platforms, central counterparties and blockchain technologies),127 the health sector (which should not include the manufacturing of medicines but rather the intellectual property, R&D and related technologies behind it)128 and certain 'critical production factors'.129
  5. In certain sectors, in addition to the detailed list of assets and relationships, the government has envisaged a final catch-all provision entirely independent of whether a company holds any such asset or performs any such activity, but exclusively tied to dimensional thresholds that the government probably deems as signalling a strategic relevance per se. In particular, in the energy, water, health and financial sectors, the draft New Decree provides that if a company (active in these sectors) books an annual turnover of at least €300 million and employs on an annual average at least 250 employees (conditions that seem cumulative and not alternative), it should automatically be deemed strategic and, as such, a relevant investment in or other transaction carried out by such a company would be subject to the screening mechanism set out in the Law.130

This last provision in the draft New Decree appears highly problematic and, more than anything, flags the invasive attitude that the government now seems to apply as regards foreign investments. First, this catch-all provision conflicts materially with the approach taken to date, where the government regularly identified in a reasonably well-detailed fashion the assets in the relevant sectors, to the effect that any other asset would be excluded (and, therefore, any company not owning or operating such assets would not be subject to the Law). The government's previous approach was arguably a response to the remarks raised by the European Court of Justice in relation to the pre-existing golden-share regime, which had been blamed for, among other things, the lack of any proportionality and excessive government discretion. Now, this revised approach seems in turn inconsistent with the proportionality principle. Also, the fact that the thresholds set out in the draft New Decree seem actually quite low, particularly in the financial sector, may mean that, in practice, any investment or other transaction concerning a company active therein would be subject to the Law.

This also highlights another potentially serious issue with this provision: for practical purposes, the draft New Decree would substantively extend the emergency measures adopted by the government in connection with the covid-19 outbreak, in that a vast range of transactions would remain subject to government scrutiny. While to some extent this broad extension of the government powers may be justified in an exceptional context, if it becomes a permanent feature of the review of foreign investments, its consistency with the freedom of economic initiative enshrined in the Italian Constitution may come under increased scrutiny.

Regardless of any such considerations (which obviously deserve a much deeper analysis), the practical effect is likely to be that the screening of investments in Italy, traditionally not regarded as a deterrent, may come to be considered one; not because of government interference in transactions between private parties (on the whole, at least so far, the government has not acted in an invasive or unreasonable way), but in light of the fact that the vast majority of transactions will now need to go through the review process set out in the Law, which would impact the timing, costs and predictability of the investment – considerations that the typical foreign investor is not really fond of.

In any event, the expected or likely developments in the Italian approach to foreign investments and related legislation will also be affected by the EU Screening Regulation, which will come into force definitively on 11 October 2020. As a matter of fact, the government has already shown particular attention to the EU Screening Regulation, both for purposes of extending the scope of the Law131 and to coordinate the review process requiring the possible interjection of the European Commission or other Member States).132

This Regulation will establish a framework for the screening of foreign direct investments into the European Union. Although Member States would be entitled to maintain their existing foreign investment control regimes,133 the European Commission would also become empowered to participate in the screening of foreign investments 'likely to affect projects or programmes of Union interest on grounds of security or public order' by issuing 'an opinion addressed to the Member State where the foreign direct investment is planned or has been completed', and that Member State would have to 'take utmost account' of that opinion.

Also, the EU Screening Regulation envisages a framework whereby the domestic and European regime coexist, subject to a cooperation mechanism: in particular, each Member State screening a foreign direct investment under its domestic regime must notify the European Commission and the other Member States by providing certain information as soon as possible.134 If any Member State considers that a foreign direct investment is likely to affect its own security or public order, or has information relevant for the purpose of carrying out the screening procedure, it may provide comments within 35 calendar days of receipt of the notice to the notifying Member State, which shall duly consider the comments. A Member State providing such comments is also required to send those comments simultaneously to the European Commission. If the European Commission believes that the notified foreign direct investment is likely to affect security or public order in more than one Member State, or if it is in possession of relevant information concerning that foreign direct investment, it will be entitled to issue an opinion within 35 calendar days of receipt of the notice to the notifying Member State, which will duly have to consider that opinion.


Footnotes

1 Giuseppe Scassellati-Sforzolini is a partner, Francesco Iodice is an associate and Simone Marcon is an attorney-at-law at Cleary Gottlieb Steen & Hamilton LLP.

2 The EEA comprises the 27 Member States of the European Union plus Iceland, Liechtenstein and Norway.

3 Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union. Available at https://eur-lex.europa.eu/eli/reg/2019/452/oj. The EU Screening Regulation will enter into force on 11 October 2020.

4 Defined by the World Bank as 'the sum of equity capital, reinvestment of earnings, and other capital. Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. Ownership of 10 per cent or more of the ordinary shares of voting stock is the criterion for determining the existence of a direct investment relationship'.

6 Pursuant to Article 1, Paragraph 7 and Article 2, Paragraphs 1 and 1 ter of the Law, the government shall review and update the list of assets at least every three years. Since 2014 the list of strategic security activities and strategic assets in the fields of defence and national security, as well as in the fields of energy, transportation and communications, set out in the secondary regulations adopted by the government has not been subject to any change. However, more recently (see Sections II.ii, II.iv and II.v) the government has sought to extend the scope of the Law to include 5G-based technologies and specific assets and activities pertaining to the sectors set out in Article 4(1) of the EU Screening Regulation.

7 Pursuant to Article 16 of Law No. 287 of 10 October 1990 (the Italian Antitrust Act), notification of acquisitions and other concentration transactions must be made to the Italian Antitrust Authority prior to closing when the aggregate turnover produced at the domestic level by the target and acquirer exceeds €498 million and the individual turnover of at least two of the companies involved in the transaction exceeds €30 million. In any event, if the concentration meets the requirements set out in Council Regulation (EC) No. 139/2004 (the Merger Regulation (EUMR)), both in terms of thresholds and the cross-border effects of the transaction, notification of the transaction must be made instead to the European Commission.

8 Specifically, these activities are defined as the study, research, design, development, production, integration and support to the life cycle (including logistics) of: (1) certain systems and materials, as further specified in the 2014 Decree, including command, control, computer and information (C4I) systems; advanced detectors integrated into C4I networks; manned and unmanned systems to counter improvised explosive devices; advanced weapons and aeronautical systems, integrated into C4I networks; and aerospace and military navy propulsion systems ensuring high performance and reliability; and (2) certain specific technologies, such as stealth technologies, nanotechnologies, technologies for high thermal degree composite materials, meta-materials technologies and design and production of frequency selective surfaces or materials.

9 The strategic security activities over which the Ministry of Interior has jurisdiction are defined by the 2014 Decree as the study, research, design, development, production, integration and support to the life cycle (including logistics) of, among others, (1) systems and sensors to be used for observation purposes, monitoring and control of the territory for the protection of public security, public rescue and civil defence; observation systems (optic and radar) for the monitoring and control of the territory, installed in aircraft, boat units and amphibious and land vehicles; propulsion systems, power transmissions and remote-command transmissions that are ancillary to high-performance and fidelity air and naval engines relating to aircraft and boat units to be used in observation tasks, monitoring and control of the territory; ballistic protection systems; and information and communication systems, as well as systems for the collection, classification and management of information and data developed and used for civil defence protection purposes, and (2) virtual private networks used for public security, public rescue, civil defence, justice and international relationships; telecommunications networks owned by the Ministry of Interior used for the protection of public security, public rescue and civil defence; connections used to establish and ensure the functioning of inter-police networks used by police forces and the Ministry of Defence; systems and related algorithms used to elaborate, protect and transmit classified information securely; the Ministry of Interior's real-time monitoring of radioactivity; and information systems used to collect, classify and manage information and data when implementing directives issued by the Ministry of Interior, or when developed and used to prevent or prosecute crimes against public security, border controls and clandestine immigration.

10 Interestingly, in 2019, the Law was amended to clarify that the notification obligation applies not only when the relevant equity interest has been acquired by two or more investors having entered into a shareholders' agreement, but also if the relevant threshold (see Section IV.i) is exceeded, in the aggregate, by shareholders having responded to a proxy solicitation under Article 136 bis, Paragraph 1(b) of Legislative Decree No. 58 of 24 February 1998 (the Italian Securities Act).

11 Under Italian corporate law (Article 2359 Civil Code), a company is controlled by another company if the latter (1) holds the majority of the voting rights at the former's ordinary shareholders' meeting, (2) holds sufficient voting rights to exercise a dominant influence at the former's ordinary shareholders' meeting, or (3) exercises a dominant influence on the former pursuant to particular contractual provisions between them.

12 In which case, the buyer may not exercise any rights other than the economic rights attached to the shares and must dispose of the shares within one year.

13 Pursuant to Article 3 of Decree Law No. 332 of 31 May 1994 (as amended and ratified by Law No. 474 of 30 July 1994), the by-laws of state-controlled companies active in the fields of defence and national security may provide for ownership caps of up to 5 per cent of their share capital. Any persons holding any interest in excess of this threshold may not exercise voting rights relating to their exceeding portion of the shares. Clauses to this effect may not be amended for three years following their introduction. However, the ownership cap does not apply in the event that the threshold is exceeded as a result of a tender offer, provided that tenders amount to at least 75 per cent of the voting share capital.

14 For instance, on 15 May 2019, the US President issued an executive order (https://www.whitehouse.gov/presidential-actions/executive-order-securing-information-communications-technology-services-supply-chain/) pursuant to which US companies were effectively prohibited from using information and communications technology from anyone considered a national security threat; simultaneously, Chinese group Huawei was added to a blacklist of entities engagement with which requires prior approval of the US government. More recently, the UK government announced that it would ban Huawei from the construction of its 5G network infrastructure.

15 This extension of the notion of a 'non-EEA entity' is consistent with Recital (10) of the EU Screening Regulation, pursuant to which: 'Member States that have a screening mechanism in place should provide for the necessary measures, in compliance with Union law, to prevent circumvention of their screening mechanisms and screening decisions. This should cover investments from within the Union by means of artificial arrangements that do not reflect economic reality and circumvent the screening mechanisms and screening decisions, where the investor is ultimately owned or controlled by a natural person or an undertaking of a third country. This is without prejudice to the freedom of establishment and the free movement of capital enshrined in the TFEU'.

16 Pursuant to Article 2, Paragraph 5, of the Law, the purchase by a non-EEA person of a controlling interest in a company holding a strategic asset is subject to the provisions of the Law.

17 In certain fields (such as gas and electricity), however, other provisions of law require the operation of the network and provision of the related services to be carried out by the same company. It follows that, in practice, cases of acquisition of any such service providers will be subject to the government's special powers outlined below.

18 In particular, the following strategic assets have been identified: (1) energy networks of national interest and the underlying contract relationships (the 2014 Regulation expressly refers to the national network for the transport of natural gas, the related compression and dispatching centres and gas storage facilities; the infrastructures for the supply of gas from non-EU countries and the onshore and offshore regasification plants; the national network for the transmission of electricity and the relevant control and dispatching centres; and the operations related to use of the aforementioned networks and infrastructure); (2) large transport networks and facilities of national interest, which also ensure the main trans-European connections, including ports and airports of national interest and the rail network relevant to the trans-European rail networks; and (3) dedicated telecommunications (telecom) networks and the public telecom network ensuring connection of end-users to the metropolitan area telecom network, services routers, long-distance telecom networks and the telecom facilities used to provide the universal telecom service to end users, as well as broadband and ultra-broadband services and the related contractual relationships.

19 If the company holding the strategic asset is a subsidiary of another company, the resolutions of the corporate bodies of the parent company resulting in the transfer of ownership or control over its subsidiary may also be subject to the government's special powers under the Law.

20 The scope of this power is currently being subject to careful scrutiny by the government as a result of the recent developments in the Telecom/Vivendi case (see Section VII.iii).

21 The 2014 Regulation (as defined below) clarifies that government powers may be exercised only insofar as the essential interests of the state (including a suitable infrastructural development) are not sufficiently protected by a sector-specific regulation (including subject to a contract in respect of a specific administrative permit).

22 In particular, pursuant to Article 6, Paragraph 2, of the Review Regulation,

the proposal to exercise the special powers under Article 2, Paragraphs 3 and 4 of the Law [i.e., the powers under point (a) above, such as those concerning a resolution of the company holding the strategic asset that results in a change of ownership or control of the same] is adopted in relation to EEA and non-EEA persons, while the proposal to exercise the special powers under Article 2, Paragraph 6 of the Law [i.e., the powers under point (b) above, such as the acquisition of a controlling interest in the company holding the strategic asset] is adopted only in relation to non-EEA persons.

23 According to the report submitted by the government to Parliament on 11 April 2019 (the 2019 Report) regarding the application of the Law in the period between 1 July 2016 and 31 December 2018, it appears that only seven of the 36 transactions or resolutions in the fields of energy, transport and communications notified to the government during this period were investments made by non-EEA individuals or entities (the 2019 Report is available at http://www.governo.it/sites/governo.it/files/GP_RelazioneParlamento_2018.pdf).

24 The list set out in Article 4, Paragraph 1, of the EU Screening Regulation is not meant to be exhaustive.

25 Council Regulation (EC) No. 428/2009 of 5 May 2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items. Available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32009R0428.

26 Specifically, Decree Law No. 105 of 21 September 2019 (the Cybersecurity Decree, which Parliament ratified with amendments through Law No. 133 of 18 November 2019) amended the Law to mandate the government to adopt a new regulation identifying further assets in the sectors contemplated under letters (a) and (b) of Article 4(1) of the EU Screening Regulation.

27 Article 15 of the Liquidity Decree (as defined below) of 8 April 2020.

28 Actually, this temporary extension had already been introduced in 2019 by Article 4 bis, Paragraph 3 of the Cybersecurity Decree, pursuant to which, pending the adoption of a government decree identifying the strategic assets in the sectors described in Paragraphs (a) and (b) of Article 4(1) of the EU Screening Regulation (namely:

(a) critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure; (b) critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No. 428/2009, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies'),

the government could immediately exercise its special powers in respect of the acquisitions by non-EEA investors of controlling interests in the share capital of companies holding such strategic assets. Therefore, the practical effect of the latest amendments to the Law introduced in connection with the covid-19 outbreak is that this temporary extension has been expanded to include the remaining paragraphs, (c) to (e), of Article 4(1) of the EU Screening Regulation.

29 None of the EU Screening Regulation Sectors actually expressly include a 'financial' sector, making reference only to 'financial infrastructures'.

30 These include certain corporate resolutions by the shareholders or the board of directors, such as merger, demerger, transfer abroad of the registered office to a non-EEA country, winding up, amendments regarding the corporate purpose or equity ownership caps in the by-laws of certain state-controlled companies, transfer of the business or business unit comprising the strategic asset, creation of encumbrances on the strategic asset, transfer of a subsidiary holding any strategic asset or performing a strategic activity.

31 The extension to the EU Screening Regulation Sectors described in Section II.iv in fact applies only to 'acquisitions' (i.e., purchases of share interests in a relevant company), and not to corporate resolutions adopted, or other transactions implemented, by such companies. Therefore, the temporary extension under the Liquidity Decree enables the government to exercise its powers with respect to these resolutions and transactions as well. In any event, once the New Decree enters into force, this distinction will lapse because both share acquisitions and corporate resolutions or other transactions will be subject to the ordinary rules.

32 By contrast, pursuant to the ordinarily applicable rules set out by the Law, the government could exercise its powers over non-controlling interest acquisitions by EEA investors solely with respect to companies active or holding assets in the defence and national security sectors (see Section II.i).

33 Article 16 of the General Provisions on Law, attached to the Civil Code of 1942. Among EEA Member States, however, the reciprocity principle is overridden by the Treaty on the Functioning of the European Union and the Treaty on the European Economic Area, as well as by bilateral treaties (BITs) with non-EEA countries to which Italy is a party (for instance, the BIT between Italy and the United States). The Ministry of Foreign Affairs maintains a list of the BITs in force between Italy and other countries, specifying in which cases reciprocity has been ascertained: www.esteri.it/mae/it/ministero/servizi/stranieri/
elenco_paesi.html.

34 Pursuant to Article 104 of the Italian Securities Act, from the date of announcement of a takeover bid, directors of the target may not adopt any measure that could undermine the achievement of the offer's goals, unless authorised to do so by a shareholders' meeting or empowered to do so under the target's by-laws.

35 Pursuant to Article 104 bis of the Italian Securities Act, during the tender offer period any transfer restriction set out in the target's by-laws, or voting limitations set out in the target's by-laws or in a shareholders' agreement, are not effective in relation to the bidder.

36 Article 104 ter of the Italian Securities Act. Within 20 days of the bidder launching its tender offer, the bidder or the target company may ask the Italian Securities and Exchange Commission (CONSOB) to determine whether the bidder would be subject to equivalent limitations.

37 Pursuant to (1) Directive 2013/36/EU, (2) Directive 2014/65/EU and (3) Directive 2009/138/EC (Solvency II) as implemented in Italy by, respectively, (1) Article 19 of Legislative Decree No. 385 of 1 September 1993, (2) Article 15 of the Italian Securities Act, and (3) Article 68 of Legislative Decree No. 209 of 7 September 2005 and implementing regulations, a notification must be made to the competent authority of any proposed acquisition of a share interest in a bank or an investment services firm or an insurance or reinsurance company that (1) is equal to at least 10 per cent of the target's share capital; (2) would enable the acquirer to exercise a significant influence on the target; or (3) grants control over the target. Similar authorisation requirements are provided under European directives, as implemented by Italian law, as well as under European regulations, for other financial sector entities, including payment institutions, e-money institutions, asset management companies, central counterparties and trade repositories. The competent authority shall authorise the acquisition after assessing certain factors, including the reputation and financial soundness of the investor, and the ability of the target, following the acquisition, to comply with its obligations under the applicable supervisory regime.

38 Pursuant to Article 25 of Legislative Decree No. 259 of 1 August 2003 (the Code of Electronic Communications); for instance, in the event that a company authorised to supply the network or provide electronic communication services intends to transfer the relevant authorisation to any third party (foreign or domestic), it must send prior notice to the Ministry of Economic Development, which may withdraw its authorisation if it ascertains that the prospective transferee does not meet the necessary requirements. In addition, Article 50 ter, Paragraph 4, of the Code of Electronic Communications addresses the case of an undertaking designated as having significant market power in one or more relevant markets intending to dispose of a substantial part or all its local access network assets to a third party.

39 As a general rule, under Article 1, Paragraph 6(c), No. 13 of Law No. 249 of 31 July 1997, the Communications Authority is empowered to authorise the acquisition of an undertaking performing radio-television broadcasting activities. In addition, pursuant to Article 43 of Legislative Decree No. 177 of 31 July 2005, notification of concentration transactions must be made in advance to the Communications Authority, which ascertains whether the transaction may hamper media pluralism.

40 For example, pursuant to Article 9 of Legislative Decree No. 93 of 1 June 2011 (which implements EU Directive 2009/73/EC), a gas transmission system operator (gTSO) must be certified by the Energy Authority to be compliant with one of the ownership unbundling models envisaged thereunder.

41 Pursuant to Article 36 of Legislative Decree No. 93 of 1 June 2011 (which also implements EU Directive 2009/72/EC), the electricity transmission operator (currently, Terna SpA (eTSO)) must be certified by the Energy Authority as compliant with the applicable ownership unbundling model envisaged thereunder.

42 Pursuant to Article 4(f) of EU Regulation No. 1008/2008, for an EU airline company to be authorised to operate, it must be owned directly or through majority ownership by EU Member States or nationals of EU Member States, or both, and must at all times be effectively controlled by such states or nationals.

43 Pursuant to Article 3 of Law No. 249 of 31 July 1997, the authorisations relating to private radio or television broadcasting may be granted exclusively to Italian or EU persons, while non-EU persons may only acquire control of such companies subject to reciprocity conditions.

44 As a general rule, the term of a shareholders' agreement relating to an Italian joint stock company (Article 2341 bis of the Italian Civil Code) may not exceed five years (three in the case of a listed company or its parent, pursuant to Article 123 of the Italian Securities Act).

45 As a general rule, the acquisition of an equity interest in a listed company of more than 25 per cent of the share capital (30 per cent in the case of small and medium-sized enterprises) triggers a mandatory tender offer. The same applies in the event that the threshold is exceeded, in the aggregate, as a result of the acquisitions made by two or more persons who are parties to a shareholders' agreement relating to the target company or its parent.

46 According to the 2019 Report, these include: (1) the 2018 acquisition of Interoute Communications Holdings SA (a Luxembourg company) by GTT Americas LLC (a US company). The target company had two Italian subsidiaries (Interoute SpA and Easynet Italia SpA), both active in the communications sector; (2) the 2018 acquisition of Trieste New Holdco Denizcilik VE Tasimamacilik (a Turkish company) by DFDS A/S (a Danish company). The target company controlled UN Ro-Ro İşletmeleri AŞ, a Turkish shipping company operating vessels between Turkey and Italy; (3) the 2018 acquisition of CKH Luxembourg Holdings Sàrl (a Luxembourg entity) by CK Hutchinson Holdings Limited and Hutchinson Europe Telecommunications Sàrl (English and Luxembourg companies respectively). the Target company controlled the Italian entities Wind Tre Italia SpA, Wind Tre SpA and 3Lettronica Industriale SpA, each active in the communications sector; (4) the 2018 merger between T-Mobile US Inc and Sprint Corporation, both US companies, resulting in an indirect change of control over Sprintlink Italy Srl, active in the communications sector.

47 The notice to the government does not trigger disclosure obligations concerning material non-public information under market abuse rules.

48 The notification must include the minutes of the resolution and all documents provided to the members of the relevant corporate bodies, as well as any further information that may be necessary for the government to complete its assessment.

49 The notification must include the business plan pursued by the investor through the proposed acquisition, the related financial plan, a detailed description of the investor and any further information that may be necessary for the government to complete its assessment.

50 In relation to purchases of share interests, the investor must also take into account the provision set out in Article 120, paragraph 4 bis, of Legislative Decree No. 58 of 14 February 1998, pursuant to which in the case of acquisition of a share interest in a listed company at least equal to 10, 20 or 25 per cent of the share capital, the buyer must disclose to the market its intentions regarding the subsequent six months, as well as certain information concerning, among other things, the funding sources of the acquisition, whether the buyer acts alone or in concert with third parties, whether it intends to stop or continue its purchases, and whether it intends to acquire control of the issuer and, in these situations, the strategy it intends to adopt and the transactions to be carried out, as well as whether it intends to propose the appointment of supplemental directors or revoke the existing ones.

51 The notification obligation lies with the company in receipt of the relevant assets or services. According to the report submitted to the Italian Senate for the possible ratification of Decree Law No. 64 of 11 July 2019 (which amended the Law introducing this provision), the rationale underlying the obligation of the recipient to make the notification is to raise awareness on cybersecurity issues among domestic companies, on the grounds that the recipient is generally better suited to clarify not only the technical features of the agreement but also, more generally, how the notified transaction fits into the company's business plan and how it impacts the implementation of the company's activities that are of strategic importance for the Italian state.

52 The notification must include a copy of the agreement and a description of (1) the contents and term of the relevant agreement, including the consideration agreed upon, (2) the services or products sold or provided, as well as the related possible certifications and technical features, (3) the vendor and (4) any further information that may be necessary for the government to complete its assessment.

53 The form was adopted by means of a Decree of the Secretary General of the Presidency of the Council of Ministers on 18 February 2015.

54 The Department of Administrative Coordination, following a meeting with the coordination group, assigns the review of the notification to a corresponding office within the Ministry of Economy, if the relevant company is controlled by the Ministry; otherwise, the process is entrusted to the Ministry of Defence, the Ministry of the Interior, the Ministry of Economic Development or the Ministry of Infrastructure and Transport, depending on the specific circumstances (mainly depending on which Ministry is competent for the field the relevant company operates in).

55 Article 6, Paragraph 7, of the Review Regulation provides that Saturdays, Sundays and other bank holidays shall not be counted for purposes of this term. However, more recently the government seems to have taken the view that this provision should be disregarded as it is not based on the primary statutory source (the Law) and in light of the fact that the Review Regulation was adopted in 2014 (i.e., much earlier than the 2019 Decree, pursuant to which the review period was extended from 15 to 45 days).

56 According to Article 6 of the EU Screening Regulation, each Member State carrying out a review of a foreign direct investment must notify promptly the European Commission and the other Member States 'whose security or public order is deemed likely to be affected'. If the European Commission or any Member State believes that the proposed investment is likely to affect security and public order in another Member State, or holds relevant information on the transaction, it may provide an opinion or make comments respectively, . These comments or opinion must be provided no later than 35 days after the initial notification from the Member State carrying out the review of a foreign direct investment in its territory, which, in any event, remains in control of the final decision regarding the investment.

57 Notably, Banca d'Italia (the Italian Central Bank), CONSOB, the Pension Funds Authority, the Private Insurance Authority, the Transport Authority, the Antitrust Authority, the Communications Authority, the Energy and Environment Authority and the coordination group established under the Prime Ministerial Decree dated 6 August 2014.

58 These rights are also suspended if the purchaser does not comply with the conditions or commitments imposed by the government, and for as long as the failure to comply persists.

59 In particular, pursuant to the general rule set out in Law No. 241 of 7 August 1990, any person who holds a qualified interest in administrative proceedings can obtain access to and make copies of the administrative documentation. However, this general right to access does not apply with respect to the information and data contained in the documents filed in the context of the review procedure instrumental to the exercise of the government's special powers under the Law.

60 In one specific case, this approach was expressly mentioned in the measure whereby the government exercised its powers. Based on the preamble of the Prime Ministerial Decree of 6 June 2013, whereby the government exercised its special powers in relation to the acquisition by General Electric of the Avio SpA aero-engine business, we understand that prior to the official notification by General Electric, dated 20 May 2013, the investor and the government had engaged in preliminary discussions documented by certain initial notices in which General Electric confirmed it could accept the conditions that the government would potentially impose for completion of the acquisition.

61 Likewise, no specific coordination is established between the government's review and any other clearance process that may be required in respect of the same transaction (e.g., antitrust), therefore the parties must submit various applications for the transaction to be cleared.

62 The Law empowers the government to determine which intra-group transactions are not subject to the possible exercise of special powers. Pursuant to the 2014 Decree and 2014 Regulation, certain intra-group transactions (such as mergers, demergers, divestitures and the creation or transfer of security interests) are not subject to the special government powers. However, prior notification to the government is required. Further, the aforementioned government measures provide that the exemption does not apply if the available information indicates a threat of serious harm to the fundamental interests of defence and national security, to public interests relating to the security and functioning of the networks and facilities, or to continuity in procurements.

63 Judgments rendered by the Administrative Court of Rome may be appealed before the Council of State.

64 The fine shall be at least 1 per cent of the aggregate turnover resulting from the latest relevant financial statements. The pecuniary fine is without prejudice to possible further criminal liabilities.

65 If the investor fails to dispose of the interest, the government may seek an order to dispose of the share from the administrative courts.

66 The pecuniary fine is without prejudice to possible further criminal liabilities.

67 Case C-326/2007, Commission v. Italy. The European Court of Justice held that the criteria that the government was to consider (listed in the Prime Ministerial Decree of 10 June 2004) prior to exercising its then golden-share powers (set out under Decree Law No. 332 of 31 May 1994) breached the EU proportionality principle, as 'the Decree of 2004 contains no details of the actual circumstances in which the power of veto may be exercised, and the criteria it lays down are not, therefore, based on objective verifiable conditions'.

68 The criteria introduced by the Cybersecurity Decree are largely based on those set out in Article 4, Paragraph 2, of the EU Screening Regulation.

69 This provision (Article 17 of the Liquidity Decree) is not entirely clear. The law makes reference to the agri-food sector and steel industry for the first time in this provision, implying that they would be part of the strategic sectors. However, neither of them actually is, given that the EU Screening Regulation Sectors do not contemplate any of them (at most, in certain cases the agri-food sector could be considered included through the reference to 'food security' in Article 4(1), letter (c), of the EU Screening Regulation, but it would still seem tenuous interpretation). The New Decree, in identifying in detail the specific assets and relationships falling within each of the EU Screening Regulation Sectors, should nonetheless also concern the National Agricultural Information System and the system of agri-food controls and, for food safety purposes, the economic activities of strategic importance in the agri-food sector, and the procurement of critical production factors in the steel and agri-food sectors (see Section VII.iv), which, as a result, would be considered of strategic national interest and in respect of which the government could exercise certain specific special powers.

70 Available at http://curia.europa.eu/juris/document/document.jsf; jsessionid= B80F7BE3FD7E336 2B1C
C3AAEFF1B44CD?text=&docid=199968&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&
part=1&cid=11417288.

71 The member States of the European Union that signed the termination agreement are Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia and Spain.

72 This agreement (available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:22020
A0529(01)) is subject to ratification, approval or acceptance and enters into force 30 calendar days after the date on which the Secretary-General of the Council of the European Union receives the second instrument of ratification, approval or acceptance.

73 Decree Law No. 145 of 23 December 2013, as ratified and amended by Law No. 9 of 21 February 2014.

74 More precisely, these are the Courts of Bari, Cagliari, Catania, Genoa, Milan, Naples, Rome, Turin and Venice. Their jurisdiction over a specific case is established on a territorial basis.

75 According to the report submitted by the government to Parliament on 22 June 2020 (the 2020 Report), regarding the application of the Law in the period between 1 January 2019 and 31 December 2019, the number of notifications, 83, was almost twice that from the previous year, 46; the 2020 Report is available at http://www.senato.it/service/PDF/PDFServer/BGT/1161802.pdf. Further, according to an article in Italian newspaper Il Sole 24 Ore on 19 July 2020, in the first half of 2020, the government received a number of notifications (more than 100) in excess of the aggregate number received during the entire year of 2019.

76 In the first months of 2020, major changes to national foreign direct investment legislation were introduced in Germany and France, among others, and Spain and the United Kingdom have enacted brand-new legal frameworks for the review of foreign investments.

77 In its 2019 report to the government, the Information System for the Security of the Republic flagged, among other things, that the more the ownership and governance of foreign investors can be attributed to public or opaque entities, the more likely it is that a transaction pursues non-conventional goals, in particular in the sectors of aerospace, defence and security, communications, transport and finance (available at https://www.sicurezzanazionale.gov.it/sisr.nsf/wp-content/uploads/2020/03/RELAZIONE-ANNUALE-2019-4.pdf).

78 According to the 2019 Report, in the period between 1 July 2016 and 31 October 2018, of 86 notifications, the government decided not to exercise its powers in 39 cases, the notification was not due in nine cases, and in 18 cases the parties notified intra-group transactions for which the Law requires a notification but, except in extreme cases, the government cannot exercise its powers.

79 According to the 2020 Report, in the period between 1 January 2019 and 31 December 2019, of 83 notifications, the government decided not to exercise its powers in 24 cases (down from 39 in the previous two years on aggregate), it did exercise its powers with prescriptions in 13 cases, the notification was not due in 19 cases, and in 15 cases the parties notified intra-group transactions for which the Law requires a notification but, except in extreme cases, the government cannot exercise its powers.

80 See the European Commission's communication dated 25 March 2020 (Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe's strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation); available at https://trade.ec.europa.eu/doclib/docs/2020/march/tradoc_158676.pdf).

81 See Section VII.iv.

82 According to the 2020 Report, from 1 January 2019 to 31 December 2019, the government exercised its special powers 13 times, but only once in the defence and national security sector and once in the energy, transport and communications sector. By contrast, according to the 2019 Report, between 1 July 2016 and 31 December 2018, the government exercised its special powers eleven times almost exclusively in the defence and national security sector (ten times), but only once in the energy, transport and communications sectors.

83 The government press release did not specify what these conditions and prescriptions consisted of, indicating only that this step was taken to protect the essential interests of defence and national security.

84 By Prime Ministerial Decree dated 6 June 2013 and published in the Official Journal on 19 August 2013.

85 Mainly (1) compliance with national measures on security of procurements and information, (2) continuity of production, maintenance and support to the navy and aerospace systems supplied to the armed forces, and generally to ensure fulfilment of international cooperation programmes Italy participates in, and (3) a prohibition against reducing or disposing of technological or industrial know-how in certain key strategic activities.

86 Namely, those officers with authority to represent GE Avio Srl (the acquisition vehicle) on matters relating to security and transfer and export of armaments. In addition, the majority of the employees active in strategic operations (including international military cooperation programmes) must be Italian citizens.

87 In particular relating to production and supply to the space business unit of Avio SpA of products or components for certain launchers.

88 Avio's aviation business unit was subject to further scrutiny by the government in connection with four additional transactions notified to the government between 2014 and 2015, but in each case the government did not deem it necessary to exercise its special powers.

89 The conditions were not disclosed in detail, as the government decree was not published.

90 According to the listing prospectus for ENAV SpA dated 8 July 2016, the government conditioned its authorisation on the company implementing governance structures, prior to the initial public offering, for the protection of the integrity of information by taking suitable internal organisational measures to safeguard access to and the confidentiality of sensitive data for the purposes of public security. By way of clarification, ENAV SpA stated in the listing prospectus that it had already established suitable structures, in particular an internal security regime governing the functioning of the company's central security body, which had been previously approved by the Prime Minister's Office and the National Security Authority.

91 According to the listing prospectus for Space 2 SpA, the government also imposed the following conditions (applicable following conclusion of the merger): (1) the company officer entrusted with the transfer and export of weapons must be an Italian citizen; (2) the company had to put in place management and organisational solutions to ensure that manufacturing and research and development operations relating to defence and national security (including know-how and patents) would be maintained in Italy; (3) the company had to put in place governance structures for the protection of the integrity of information, by taking suitable internal organisational measures to safeguard access to and the confidentiality of sensitive data for the purposes of public security; and (4) the company must ensure the continuity of the production operations necessary to guarantee that Italy complies with its obligations under international cooperation programmes.

92 No further details on the conditions actually imposed are available from public records.

93 Based on press reports, it appears that the conditions imposed by the government included an obligation on the seller to invest the proceeds of the sale in Piaggio Aerospace's military unit. Moreover, according to the 2019 Report and further publicly available information from press reports, the government required Piaggio Aerospace SpA, among other things, to: (1) set up a fully autonomous organisational unit in charge of carrying out the company's activities of relevance for Italian security interests, and endow it with appropriate financial and human resources to guarantee the independence of the unit; (2) adopt all suitable solutions to ensure that no technical information relevant to the production and sale of P1HH, P2HH and MPA aircraft is used or permitted to use, directly or indirectly, for the production and sale of, among other things, aircraft and drones; and (3) ensure that the security officer of such is appointed among the three individuals proposed by the Department of Information for Security of the Prime Minister's office. In addition, through the establishment of a special inter-ministerial committee, the government provided for a number of measures aimed at monitoring and controlling compliance with the requirements and conditions imposed on Piaggio Aerospace SpA.

94 See the company's press release of 8 June 2018: https://www.retelit.it/public/CMS/Files/4792/PR-Decree-CdM.pdf. In particular, these prescriptions and conditions include the: (1) guarantee of service continuity and network functionality, (2) development of industrial programs and the use of appropriate investments, as well as (3) protection of the physical and logical security of the network.

95 Based on a press release issued by Retelit on 27 April 2018, the winning slate was submitted by a consortium composed of Bousval SCA (a company controlled by Lybian Post Technology Company), Axxion SA and Shareholder Value Management AG, which had also signed a shareholders' agreement among themselves. Another candidate slate was submitted by Fiber 4.0 (which had then flagged the matter to the government) but it was not voted by the majority and therefore only appointed one director.

96 The Court found that 'there are no regulatory provisions that attribute to the Secretary General the power to issue opinions; on the contrary, this power is among the general powers attributed to' the board of AGCOM established under Article 3, Paragraph 1, of Law No. 249 of 31 July 1997, which is composed of the president and all commissioners. Moreover, the Court declared that the investigation carried out by the government was flawed as it was based on this opinion, rather than the government making an objective assessment of whether the requirement for the application of the provisions of the Law was satisfied (i.e., whether Retelit held strategic assets in the communications sector under Article 2 of the Law).

97 The licence was granted for the purpose of developing the High Data Rate Waveform as part of the European secure software defined radio (ESSOR) programme launched by the Member States of the Organisation for Joint Armament Co-operation, which governs cooperation activities in relation to defence equipment programmes between Italy, France, Belgium, Germany, Spain and the United Kingdom in the field of armaments.

98 Public disclosure and the press release issued by the government do not provide further details in relation to the conditions and prescriptions imposed on the transaction. However, the 2019 Report states that a proposal was made to condition the authorisation on the German government's formal adherence to the ESSOR programme.

99 The government's press release did not elaborate on what the prescriptions consisted of, indicating only that the special powers were exercised for the purpose of protecting the strategic interests of the Italian state. However, based on publicly available press reports, it appears that these included: (1) the preservation of the infrastructure's strategic role in the Italian economy; (2) the maintenance of the OLT regasification plant off the Livorno coast; and (3) an obligation to notify in advance the government of any major changes in OLT Offshore LNG Toscana SpA's governance structure.

100 The press release issued by the government does not detail nor explain the prescriptions imposed. Based on press reports, it appears that the government approved the transaction on condition that, among other things, Fastweb SpA: (1) merges the corporate security function in the governance processes; (2) carries out audits for the purpose of confirming the absence of functional interactions between core and experimental networks, as well as allowing monitoring actions, if deemed necessary; (3) submits to the government at the end of any testing activities the results of the audits carried out; (4) provides the government with regular updates – within 60 days as of 26 June 2019 and every six months thereafter – over compliance with certain security rules; and (5) promptly communicates any intention to expand the system architecture.

101 The decision to exercise the special powers was taken at the first meeting of the then newly appointed cabinet, on a proposal from the Minister of Economic Development. Therefore, since the beginning of its mandate, the new cabinet, which is currently still in power, has taken a very careful approach to the screening of foreign investments in the field of broadband electronic communication services based on 5G technologies. The press release issued by the government and press reports on the matter, however, do not detail nor explain what these prescriptions consisted of. The relevant transactions were: (1) certain agreements and contracts entered into by Linkem SpA (the Italian telecommunications company specialised in wireless broadband connections) for the sale and purchase of assets and services regarding the design, manufacturing, maintenance and management of networks relating to broadband electronic communication services based on 5G technologies and the sale and purchase of high-tech components instrumental to the building or operation of such networks; (2) a transaction notified by Vodafone Italia SpA (the Italian subsidiary of the UK-based telecommunication conglomerate) concerning certain agreements on the purchase of assets and services for the design and management of broadband electronic communication services based on 5G technologies; (3) the agreements entered into before 26 March 2019 by TIM SpA (the Italian telecommunications company) relating to communication equipment and systems in relation to which the 5G technology may be considered a natural development; (4) the agreements entered into between Wind Tre SpA (the Italian mobile operator) and Huawei (the Chinese multinational technology company and leading global provider of information and communications technology infrastructures and smart devices) regarding the purchase of assets and services for the design and management of broadband electronic communication services based on 5G technologies; and (5) the purchase by ZTE Corporation (a Chinese technology company that specialises in telecommunications and information technology) of Fastweb SpA's (the Italian provider of network telecommunications services) equipment relating to radio components for the implementation of the last section of the 5G fixed wireless access network.

102 On 10 July 2020, AGC Inc waived the condition precedent.

103 On 7 July 2020, the government also exercised its powers in relation to the notification by Aero Sekur SpA (a company active in helicopter protection and rescue systems) and Arescosmo SpA (a company active in the supply of products and services aimed at sustaining the life and survival of defence and security forces as well as space exploration) regarding the change of control of their parent companies (Aero Sekur Airborne Ltd and Arescosmo Limited, respectively). In particular, Aero Sekur SpA and Arescosmo SpA were both controlled by the Penta Capital Fund and managed by the same chief executive officer, Mr Mark Butler. On 27 April 2020, the chief executive officer Mr Richard Butler acquired full control of the two parent companies. The government authorised the shareholding reorganisation on condition that certain requirements (not made public) were met.

104 In the remaining cases, the simplified procedure envisaged for intra-group transactions was followed (and in respect of which the government may not exercise its powers except in extreme cases).

107 Other cases in which the government concluded it would not exercise its special powers under the Law include (1) the merger of Aeroporto di Firenze SpA (which operates Florence airport) into Società Aeroporto Toscano Galileo Galilei SpA (which operates Pisa airport), (2) the acquisition of the telecommunications towers business of Wind Telecomunicazioni SpA by Abertis Infraestructures SA, (3) the transfer of B-Max Srl's know-how in the manufacturing of defence-related materials, (4) the partial and proportional demerger of Vitrociset SpA (a company active in mission-critical, business-critical or life-critical systems for homeland security, counterterrorism and combating crime, space applications and transport of goods and passengers) resulting in the transfer of the share interests in Salaria Real Estate Srl and Tiburtina Real Estate Srl to the demerged company's shareholders (Ciset Srl and Finmeccanica SpA). The demerger was reported to be integral to a corporate reorganisation of Ciset group aimed at the entry of a new controlling shareholder interested only in the group's industrial business, (5) the partial demerger of Rete Ferrovie dello Stato SpA (which owns and operates the rail network), entailing the transfer of a business unit (consisting of the electricity grid related to the rail network) to SELF Srl and the subsequent transfer of SELF Srl to Terna SpA (the Italian electricity grid operator), (6) Terna SpA's acquisition of certain of A2A Gencogas SpA, AIM Vicenza SpA and Dolomiti Energia Holding SpA's high-voltage power stations, (7) the acquisition by F2I SGR SpA (an Italian infrastructure fund) of Infracom SpA (an Italian telecommunications service provider) from Serenissima SpA (the Abertis subsidiary operating a motorway in northern Italy), (8) the granting of a license by Leonardo SpA in favour of the Ministry of Defence of the Republic of Egypt and the Egyptian Armed Forces to use intellectual property rights relating to the tool ART-CM117E Advanced, which allows reprogramming of the encryption algorithm adopted by the CM117-E devices (a multiprotocol digital voice/data crypto device for land, naval and airborne tactical applications), and (9) the acquisition by Leonardo SpA of a 98.54 per cent stake in the share capital of the aforementioned Vitrociset SpA through the exercise of a pre-emption right.

108 However, the government requested the buyer to submit the industrial plan promptly after its adoption.

109 By a decision adopted on 30 May 2017, the European Commission ruled that, as a result of the shareholder vote on the appointment of the new Telecom Italia board of directors, Vivendi had acquired de facto control over Telecom Italia pursuant to the EUMR and the Commission authorised the acquisition subject to the divestiture of an asset owned by Telecom Italia.

110 'Direction and coordination' as a concept is peculiar to Italian corporate law; although there is no statutory definition, it is generally maintained that an entity exercises direction and coordination powers over another company where a significant part of the management decisions of the latter is continuously and substantively taken or influenced by the management of the former, despite being formally implemented by the management of the latter. The direction and coordination regime entails the liability of the entity abusively exercising direction and coordination powers in respect of the company's shareholders (for any prejudice caused to its profitability and the value of their investment) and in respect of the company's creditors (for any impairment to the integrity of the company's assets).

111 In particular, on 26 July 2017, the French Minister for the Economy and Finance announced that France would temporarily nationalise the STX France shipyard, previously owned by South Korea's STX, which had been acquired by Fincantieri SpA (an Italian shipbuilding company controlled by the Italian Ministry of Economy and Finance) in the context of STX's bankruptcy proceedings. The decision gave rise to strident reactions by the Italian government, which were eventually settled through an agreement between the two governments, subject to which (1) Fincantieri would take control of STX by acquiring 50 per cent of the shares (the remaining shares being acquired by the French state (34 per cent), Naval Group (10 per cent), STX employees and local suppliers) and borrowing a 1 per cent share interest from the French state for 12 years; and (2) Italy and France would also explore the possibility of combining Fincantieri and Naval Group's respective military businesses. In fact, after almost three years, this transaction has yet to be closed, mainly because France and Germany in 2018 requested the EU Commission to assess the transaction under the EUMR. Although a decision was expected in the first half of 2020, the EU Commission decided to postpone it to an unspecified date because of the covid-19 outbreak.

112 In its reply to CONSOB, Vivendi denied the exercise of control over Telecom Italia. However, on 13 September 2017, CONSOB found otherwise; Vivendi appealed this decision before the Administrative Court of Latium in Rome, which, however, confirmed CONSOB's findings by a judgement dated 17 April 2019. Based on publicly available information, Vivendi appealed this judgment to the Council of State. Vivendi has also denied that it exercised control over Telecom Italia for accounting consolidation purposes pursuant to International Financial Reporting Standards 10, which establishes principles for presenting and preparing consolidated financial statements.

113 The government ordered the creation of a corporate organisation for each of Telecom Italia, Sparkle and Telsy, to which the corporate operations in the national security sector are to be entrusted, requiring that it be granted suitable financial and labour resources.

114 The government required that one member of the board of directors at each of Telecom Italia, Sparkle and Telsy should hold only Italian citizenship, hold a specific security certification, receive the powers to manage the corporate security business and receive government approval as to his or her suitability for the purposes of the protection of the essential interests of defence and national security.

115 Notably the operation and security of the networks and of the services supporting the strategic activities, as well as the security operations centre, the computer emergency response team, the data operations centre, the network operations centre, the information operations centre and the other data centres and logistics and information security devices ensuring the confidentiality and integrity of the corporate data.

116 For instance, the adoption of a suitable investment and development plan for the operation, maintenance and modernisation of the network and systems (including submarine cables and internet exchange point) and the cryptographic products and solutions, to be submitted in advance to the monitoring committee established under the decree.

117 Although Vivendi did not notify the government of the acquisition of the stake in Telecom Italia punctually for the purposes of the government special powers in the fields of defence and national security, at the time Vivendi notified the transaction to the government, the Law did not expressly provide that the investor or the company could receive a fine in the event of failure to notify a transaction or resolution (creating a misalignment with the energy, transportation and communications sector). The government sought to address this discrepancy through the 2017 Decree but did not apply this retroactively; therefore, Vivendi could not be sanctioned.

118 Vivendi challenged the decree before the President of the Italian Republic, which is a special appeal procedure decided directly by the Council of State (i.e., not by the Rome Administrative Court in first instance). Based on publicly available information, the Council of State dismissed the appeal on grounds that Vivendi had already challenged the mentioned CONSOB ruling and, given that the government decision was also based on such ruling, Vivendi could not challenge the government decree separately and before a different judicial authority.

119 Notably, the adoption of development, investment and maintenance plans intended to ensure the functioning and integrity of the network, the continuity of the universal service provision and the satisfaction of the general interest needs in the medium and long term.

120 In particular, the government required Telecom Italia to notify it of any change in the corporate governance of the company and the proposed sale of any asset that could affect the control and functioning of the network and the continuity of the universal service.

121 This is consistent with the criteria followed to determine the amount of the fine issued to Retelit SpA (see Section VII.i), where the government only considered the turnover generated with the strategic assets held by the company.

122 These included the approval on 16 May 2017 of two motions by the lower house of Parliament, requesting the government to revise and enhance its powers to control investments by foreign companies. Both motions particularly stressed the imbalance between the value of acquisitions of Italian companies by foreign investors and the acquisitions of foreign companies by Italian investors; they also suggested that foreign investments often pursue national strategic assets through hostile takeovers that deprive the targets of control over technologies and industrial and commercial know-how essential to the Italian economic system. Similarly, on 25 March 2020, the chairman of CoPaSiR – the Parliamentary Commission for the Security of the Republic – was reported to have urged the government to extend and enhance the screening mechanism envisaged by the Law.

123 According to the 2020 Report, in the course of 2019, the government received 14 notifications in the 5G sectors. Of these, three were incomplete or irregular, and in respect of all others the government exercised its powers by conditioning the implementation of the agreement on the fulfilment of certain prescriptions.

124 Article 2, Paragraph 1, letter (a) of the draft New Decree (the corresponding reference in the above-mentioned European Council Directive is Article 2(1)(a)). Similar definitions are also contained for critical technologies, critical production factors, critical information and strategic relevance relationships.

125 These include: (1) the critical infrastructures where combustibles, nuclear materials and radioactive wastes, as well as technologies and infrastructures carrying out the treatment, management and transport thereof, are or may be located, as well as the real estate hosting such infrastructures; (2) coast crude oil storage facilities with a capacity in excess of 100,000 cubic metres utilised for the domestic market, liquefied natural gas storage infrastructures (the 2014 Regulation makes reference to onshore and offshore regasification plants instead) with a capacity in excess of 10,000 cubic metres, oil pipelines for procurement from foreign countries, including in transit towards other countries, and oil tubes for the procurement of intercontinental airports; and (3) critical infrastructures, including platforms, to operate wholesale markets of natural gas and electricity.

126 These include the critical technologies and infrastructures instrumental to devising, developing, implementing and supplying or providing aerospace products or services and the related applications. However, the title of the relevant provision specifies that these shall be for 'non-military' purposes, which should distinguish them from any overlap with the assets listed in the 2014 Decree.

127 More specifically, the draft New Decree includes the following: (1) critical infrastructures, including platforms, for the multilateral negotiations of financial instruments or monetary deposits, the provision of base services by central depositories of securities and clearing service as central counterparties, as well as the settlement or netting of payments; (2) the following critical technologies: artificial intelligence and distributed ledgers, instrumental in innovating services and products in the financial, credit, insurance and stock exchange sectors; digital technologies related to payment systems and services, electronic money, money transfer, liquidity management, loan, factoring trading and investment management activities; insurtech; development of software for the protection of personal data, and negotiation and exchange of data and products, as well as the management of documents in the context of financial activities; and blockchain technologies.

128 More specifically, the draft New Decree includes the following: (1) digital critical infrastructures instrumental to the provision, even from remote, of health services; (2) critical infrastructures whose objective is the analysis of data and the application of biological know-how to health and diagnostics, prognostics, therapy and related follow-ups; and (3) bio-engineering critical infrastructures and critical nanotechnologies applied in the pharmaceutical sector and in the sectors of medical devices, diagnostics, prognostics and therapy, as well as in the chemical and agri-food sectors.

129 These include: (1) procurement of the list of raw materials essential for the European Union as set out in the Communication of the European Commission to the European Parliament, the Council, et al. of 13 September 2017, including coking coal and platinum group metals, as well as heavy and light rare earth elements; (2) procurement of critical production factors utilised in the steel industry;(3) strategically relevant economic activities and procurement of critical production factors in the agri-food supply-chain; and (4) the National Agricultural Information System and the system of agri-food controls, and for purposes of food security.

130 In relation to certain assets pertaining to the data protection sector, the draft New Decree provides that if a company processes, stores, has access to or controls data relating to at least 300,000 individuals or entities, it should automatically be deemed to be of strategic importance for the national interest and as such a relevant investment in or other transaction carried out by such a company would be subject to the screening mechanism set out in the Law.

131 See Section II.iv and Section II.v.

132 See IV.i.

133 Pursuant to Article 3(1) of the regulation, 'Member States may maintain, amend or adopt mechanisms to screen foreign direct investments in their territory on the grounds of security or public order'.

134 Pursuant to Articles 6(1) and 9(2) of the EU Screening Regulation, this information includes:

(a) the ownership structure of the foreign investor and of the undertaking in which the foreign direct investment is planned or has been completed, including information on the ultimate investor and participation in the capital; (b) the approximate value of the foreign direct investment; (c) the products, services and business operations of the foreign investor and of the undertaking in which the foreign direct investment is planned or has been completed; (d) the Member States in which the foreign investor and the undertaking in which the foreign direct investment is planned or has been completed conduct relevant business operations; (e) the funding of the investment and its source, on the basis of the best information available to the Member State; and (f) the date when the foreign direct investment is planned to be completed or has been completed.