Germany plans €500B fund to fend off foreign M&A

March 20, 2020
A shop in Berlin informs would-be customers that "we are temporarily closed."
(​​​​Sean Gallup/Getty Images News)

Germany has gradually been adopting protectionist policies in a bid to stand up to foreign competition as Europe's economic trajectory has shifted. 

Now that the coronavirus has brought the economy to a standstill, politicians are acting with fresh urgency to come to the rescue of struggling companies.

Germany's stock market selloff has slashed valuations of leading companies, with the blue-chip DAX stock index down about 35% in the past month, a trend that could make companies exposed to acquisitions. More coronavirus news: Continuing coverage from PitchBook.

In response, government officials in Berlin are planning launch a fund worth a half-trillion euros, according to German magazine Der Spiegel, in an initiative that could help distressed German companies fend off hostile foreign takeovers.

The fund would guarantee liabilities or provide capital and would be similar to a stabilization fund that launched in 2008 with €480 billion (around $517 billion) to support financial institutions like Commerzbank. Government officials are also said to be looking at setting up direct support programs worth around €180 billion, which could be increased to €700 billion.

Only a year ago, such measures were politically unpopular.

Under a similar proposal, economy minister Peter Altmaier called for an investment fund last year that would allow the government to take temporary ownership of a company in the case of takeover interest from foreign buyers. The proposed "Industrial Strategy 2030" aimed to create "national and European champions" to compete with foreign tech giants, particularly ones based in China. But business leaders and other critics lambasted the idea, labeling it a case of excessive state interference.

In this time of massive disruption in the German economy, however, the idea is gaining fresh support.

Fallout from the COVID-19 crisis has been compounded by the fact that the nation's economy was already struggling and narrowly avoided a recession in Q3 2019. 

Germany's huge manufacturing sector powers an export-oriented economy that has been hit hard by a global trade war, and its biggest corporations are under pressure to cut costs and shed non-core assets. Thyssenkrupp, for example, sold its elevator businesses in February to a group led by Advent International and Cinven as part of a restructuring plan.

Despite the turmoil in the markets, fears of German companies being targeted for foreign takeovers could be overblown, if past M&A trends are any indication. Last year only five public companies got acquired by foreign entities, and the deal trend has been falling for the past few years, according to PitchBook data. The recent decrease from 2017 onward followed a change in regulations in 2018 that allowed the government to review or block foreign purchases involving stakes of 10%, down from the previous 25% threshold.

Featured image via Sean Gallup/Getty Images News

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