No FDI clearance: takeover of Siltronic by GlobalWafers fails

GlobalWafers Co Ltd, a Taiwanese company, and Munich-based Siltronic AG are worldwide leaders in silicon wafer manufacturing. Wafers are a critical input product for semiconductor chips, which is an industry that has become notorious for its production shortage since 2020. Reasons often cited include the COVID-19 pandemic as well as rising economic tensions between China and the USA. At the end of 2020, still in the early stages of the crisis, GlobalWafers made a voluntary public takeover offer to Siltronic’s shareholders and filed an application for a clearance certificate pursuant to section 58(1) of the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung – AWV) on 10 December 2020. 

The impact of the global chip shortage increasingly revealed the significance of wafers for the automotive sector and products such as video game consoles, mobile phones, graphic cards, and others. As a result, in the context of comprehensive legislative amendments to German foreign trade law (see our alerts here and here), the scope of foreign direct investment (“FDI”) control was significantly expanded with regard to semiconductor manufacturers and other related businesses, with effect from 1 May 2021. Although it did not have a direct legal effect on the Siltronic case, the policy and enforcement environment within which the case was assessed by the German government had clearly become more rigorous. 

GlobalWafers and Siltronic are understood to have offered various remedies, including selling security-relevant assets, the possibility to rescind the contract under certain conditions, and/or granting the German government a golden share (i.e. the legal option of Germany to outvote other shareholders under specific circumstances). By way of background, serious concerns relating to the German public order or security are often dealt with in what are known as “public law agreements”; with regard to the Siltronic deal, however, the German Ministry of Economic Affairs and Climate Action (“Ministry”) did not enter into such an agreement before 31 January 2022. Instead, it briefly stated that “it was not possible to complete all the necessary review steps as part of the investment review” by the end of the period. 

Now, it is important to note that the Ministry cannot decide the time frame within which a decision must be made at its own discretion. Instead, the limits are dictated by law: after an initial investigation of two months and a more in-depth examination of four months, the Ministry can extend the deadline by a maximum of four months if certain criteria are met. Once the overall investigation period has expired, the clearance certificate is deemed to have been issued – which is exactly what GlobalWafers argued in December 2021. But time limits have to be considered suspended in the case of contractual negotiations or if the Ministry (reasonably) demands additional information – which is what the Federal Government argued, in particular due to a request for information dated 10 December 2021 made after previous negotiations had been terminated. This request concerned the approval decision with remedies from China’s State Administration for Market Regulation which could only be submitted on 26 January 2022, potentially ending the suspension of the Ministry’s deadline, but definitely not soon enough to expire prior to the long-stop-date. It was crunch time. GlobalWafers did seek a preliminary injunction stating that the clearance certificate should be deemed to have been issued. But on 27 January 2022 and 31 January 2022, the Administrative Court (Verwaltungsgericht) of Berlin and the Higher Administrative Court (Oberverwaltungsgericht) of Berlin-Brandenburg ruled in favour of the federal government (VG 4 L 111/22; OVG 1 S 10/22). Thus, the clearance certificate applied for on 10 December 2020 proved to be the one missing piece necessary for closing the deal. 

It remains unclear whether the takeover would have been cleared, but doubts clearly exist. The mere duration of the FDI control procedure and the handling of the proceedings, to the extent that these are known, suggest that the federal government identified serious issues with the deal.

Siltronic is not the first deal to fail (see Aixton, KUKA, 50Hertz, Leifeld Metal Spinning, IMST, for example). In fact, the global trend towards tighter FDI screening (see our alert here) is evident. In view of this, foreign investors in Germany, and in other jurisdictions, are well advised to carefully assess the applicability of the ever increasing scope of the national FDI regimes, timing and not the least costs. An FDI risk assessment should be made at an appropriately early stage in the process. While collapsing transactions are naturally catching public attention, it should not hide the fact that by far most deals (even evidently critical ones) can in our experience be brought to a satisfactory conclusion.