We have given our readers a short overview about the history of foreign investment control in Germany here and have also blogged about certain cases (here). Yesterday, news broke that the German government is set to block the acquisition of Heyer Medical AG by the Chinese Aeonmed – a deal that apparently closed more than two years ago.
How it all begun
Heyer with headquarters in Bad Ems, Germany, can look back to a long history. The company was founded in 1883 by Carl Heyer as a company for the development, production and distribution of medical devices. The company’s first products were inhalation systems. To this day, devices for inhalation represent the core of the company. In October 2018, the company fell into insolvency and was then acquired by Aeonmed. Reportedly, the deal closed in March 2020.
According to public sources, the company had a turnover of 42 million Euro in 2020 and around 35 employees. Rumour has it that the German Ministry for Economics and Climate Action (BMWK – the German Ministry responsible for foreign investment control reviews) initiated its proceedings in mid-2020, around the time German foreign investment control was amended to, inter alia, introduce a new notification requirement for non-EU/EEA acquisitions of 20% or more in a German company developing or producing certain vaccines and pharmaceuticals, personal protective equipment (e.g., facemasks or surgical masks), or medical products intended for the treatment of highly infectious diseases (e.g., ventilators).
Peter Altmaier, back then the responsible -minister, stated the following: “in revising the Foreign Trade and Payments Ordinance to this effect, we are ensuring that the Federal Government will become aware of acquisitions of critical companies in the healthcare sector and be able to assess these. The current COVID-19 crisis shows just how important it can be to have medical expertise and production capacity in Germany and Europe in a crisis. At the same time, the revised ordinance makes an important contribution to the safeguarding of a well-functioning healthcare system in Germany”. Those new rules might well not have been applicable to the Heyer deal, though, as that took place earlier (still, even under the previous rules, the government had the power to intervene).
What seems to have triggered concerns here are ventilators. Ventilators have gained great importance in the wake of the Covid19 pandemic as they are used for the treatment of patients in hospitals, in particular those patients in intensive care.
Unfortunately, the BMWK does not publish its decisions (and strictly speaking, it seems no formal decision has been taken yet). However, it can be gathered from the press reports that, according to the BMWK, Aeonmed operates in Germany with aggressive prices and benefits from support measures by the Chinese state. In addition, according to government sources, the Covid-19 pandemic showed how important it was for Germany to have its own producers so that it could obtain ventilators independently of non-European manufacturers.
The reference to Aeonmed’s aggressive prices and state support might also be a hint towards a concern that the company could, after the acquisition of Heyer, drive European competitors out of the market with a low-price strategy. We have seen such concerns in other cases, even though they are difficult to put under Germany’s substantive test for foreign investment: Will the transaction likely have an effect on the public order or security of the Federal Republic of Germany or another EU Member State (or programmes of Union interest)? There seems to be no confirmation whether these concerns were also a factor in the Heyer case.
The case shows once again that the German government is keeping a very close eye on the acquisition of German companies by foreign investors. Just about two months after the BMWK led Globalwafers’ acquisition of Siltronic fail (a EUR 4.4 billion-deal), the government has stopped the next transaction. As in some cases from the past, the actual size of the target and its turnover does not seem to play a decisive role.
The fact that the prohibition concerns a (relatively small) manufacturer of medical devices may seem surprising at first glance. But it shows that security of supply by local producers plays an important role in healthcare transaction involving foreign buyers.
However, the most important thing about the transaction is that it has already closed – and not just recently, but more than two years ago. This might well be the first case (at least publicly known) where the government steps in with a prohibition after closing, in particular after such a long time. The government has the power to unwind transactions and, at least under today’s regime, to appoint a trustee to oversee the process. But “unscrambling the eggs” might not be an easy exercise.