The start of 2024 has seen the European Commission announce a new EU-wide legislative proposal, and the Italian and UK governments both issued two noteworthy enforcement decisions.

In the EU, the European Commission published a proposal to update the 2019 EU Foreign Direct Investment Screening Regulation. The aim of the reform is to enable a clearer and more open line of communication between a national FDI authority and companies that have submitted an FDI filing. Companies will be able to rely on new harmonized procedural rights, including duties for Member States to (i) ensure judicial review of their national FDI decision; (ii) provide for the right to be heard and to oppose; and (iii) state reasons before imposing remedies.

While expanding procedural rights at Member State level, the proposal does not oblige the Member States to introduce a pre-notification procedure. Member States also retain the discretion with respect to  which countries are viewed as at risk jurisdictions. However, as recent national enforcement indicates, these two aspects can still be essential in the risk assessment and the management in a FDI filing.

In Italy, the national government conditionally approved the acquisition  by Kohlberg Kravis Roberts & Co (KKR), a US private equity firm of Telecom Italia (TIM)’s fixed line network. In this transaction, between making a non-binding offer and subsequent binding offer to acquire the assets, KKR signed a Memorandum of Understanding (MoU) with the Italian government to address security-related concerns, before the formal FDI review process started.[1]

In the UK, the UK government imposed national security conditions to limit participation by Emirates Telecommunications Group (e&), a company that the UAE owns 60% of the shares in Vodafone, a British multinational telecommunications company.  This is the second case in the past six months where an FDI authority in Europe is reviewing investments originating from Middle East countries.[2] This goes along with the trend of European FDI authorities scrutinizing investments from typically “friendly jurisdictions” including Japan, Saudi Arabia, the UAE and the USA.

The Draft EU FDI Screening Regulation – an important step towards more certainty and transparency.

As the number of FDI regimes have increased in the EU Member States over the past few years, complaints have been raised about the lack of legal certainty and transparent communication. The main changes proposed under the Draft EU FDI Screening Regulation tackle these issues while maintaining a balance to avoid intruding into the sovereignty of Member States.

The proposed changes include,  the introduction of  a detailed minimum list of triggering sectors as well as mechanisms to coordinate the consideration of remedies and adoption of final decisions between Member States. The aim of these changes is to  increase certainty for the notifying parties at various stages of the FDI review process – from pre-notification to the final decision. However, while this is an attempt to introduce greater consistency in national FDI reviews it is difficult to see how this will be implemented in practice as Member States apply different legal tests, review timelines and often have diverging security concerns.

These  amendments also include the requirement for  national FDI authorities to publish their annual FDI reports, clearly communicate the reasons for mitigating remedies, should the imposition of such be considered, and ensure the notifying parties have the right to be heard and have the ability to oppose the need for conditions. Nevertheless, the authorities will be able to limit the scope of disclosure if they are viewed as “contrary to the security or public order interests of the EU or one or more of the Member States”. As such, a  concern exists that some Member States may more readily rely on this exception than others, limiting  the effectiveness of these proposed amendments.

The Draft EU FDI Regulation also mandates that when the deal triggers FDI screening in multiple EU Member States, the notifying parties should submit FDI applications simultaneously in all relevant jurisdictions. While an attempt to align on timing should ordinarily be welcomed, this approach  only aligns the initial stage of the review processes, while the alignment of the review process is  dependent on the willingness of individual Member States to amend their own timelines and procedures, which may not be possible due to strict statutory obligations. At the same time the notifying parties, assuming they are able to comply with simultaneous filings which may not be possible, will be deprived of strategic flexibility and subject to an additional administrative burden of preparing numerous FDI notifications (which often require significantly different information) within tight deadlines.  

Engage with FDI authorities pre-notification and even pre-transaction to streamline the FDI review process.

Currently a limited number of  European FDI regimes, including Denmark and Italy, provide for a pre-screening review mechanism. These pre-screening review mechanisms differ from pre-notification in merger control as the parties are not able enter into substantive discussions on the transaction or start proposing security-related remedies. Instead, FDI authorities merely state their views on the interpretation of the relevant thresholds and their applicability to a transaction.

This being said, a recent Italian approval decision signals the importance for FDI regimes to expand the scope of their pre-notification procedures to formally enable discussions on the substance of the deal.

On 17 January 2024, the Italian government issued a conditional approval of the EUR 22 billion acquisition of TIM’s landline network assets by KKR.[3] This decision is notable as a result of the investor’s proactive pre-transaction engagement with the Italian government, which simplified and expedited the FDI review.

In light of the FDI scrutiny of previous transactions involving TIM,[4] KKR signed a pre-transaction MoU with the Italian Ministry of Economy and Finance prior to KKR placing  an official bid to acquire TIM’s assets, which was submitted later in October 2023.

The purpose of the MoU was to pre-emptively address security-related concerns over the asset acquisition. As the statutory pre-notification procedure under Italian FDI rules only allows for consultation with the government on the applicability of the regime to a transaction, KKR engaged in discussions with the Ministry of Economy and Finance prior to the formal commencement of the pre-notification procedure.[5]

The MoU determined that if the bid was successful, the Ministry of Economy and Finance could acquire up to 20% of the target assets to guarantee national security oversight. Even though the MoU did not replace the FDI clearance, it de facto ensured the FDI review went smoothly and expeditiously.[6]

Therefore, where an investor has valid reasons to believe that a proposed transaction will raise security concerns, it might be sensible to proactively reach out to the relevant authority and preliminary resolve such concerns, showing willingness to cooperate. Importantly, such contacts may be made (i) before the submission of the bid and signing of transactional documents; and (ii) even where the national FDI rules do not ordinarily allow for such contacts. This assessment will have to be made on a case by case basis taking into account the risk factors of the transaction and the willingness of an individual jurisdiction to engage in such pre-notification discussions.

An increase in FDI scrutiny towards investments originating from Japan, Saudi Arabia, the UAE and the USA.

Each EU Member State has the discretion to decide which jurisdictions pose the greatest risk to their national security. Under the current geopolitical landscape, national FDI authorities are mostly viewing investments from Russia and China, and increasingly the USA[7] based on recent decisions and practices, as raising significant  risks to their national security.

However, recent enforcement decisions also indicate an increased scrutiny of investments coming from investors outside of those jurisdictions:

For example, on 8 May 2023, the Japan-based optical sensors and devices manufacturer Hamamatsu Photonics announced that its acquisition of Danish NKT Photonics, a supplier of fibre lasers and photonic-crystal fibre, had been prohibited by the Danish government. No additional information is currently publicly available with respect to this decision.

As reported in more detail in our September update, the Spanish government decided to scrutinize the USD 2.25 billion acquisition of 9.9% shareholding in Telefonica by Saudi Arabian group STC in early September 2023. The main concerns related to the fact that Telefonica supplies systems and equipment to the military division and satellite services to the aerospace division of the Ministry of Defence of Spain. As a result, in December 2023, the Spanish government acquired a 10% stake in Telefonica to ensure “greater shareholding stability for the company” and “contribute to safeguarding its strategic capabilities”. As the current status of the investigation is unknown,[8] it remains to be seen whether the Spanish government will consider the acquisition of a stake in Telefonica sufficient to resolve the security-related concerns.

On 24 January 2024, the UK Secretary of State for the Cabinet Office imposed notification and corporate governance requirements, pursuant to its powers under the UK National Security and Investment Act (“NSI Act”), on a partnership agreement between e& and Vodafone.[9] Whilst the UK government discloses minimal information around the substantive reasons behind its decision-making, it is noteworthy that the acquirer was 60% owned by the UAE state.

While it is too early to conclude whether companies from Japan, Saudi Arabia, the UAE and the USA  will join the high-risk group of jurisdictions, companies and their legal counsel should be cautious, educate their clients of potential risk if they are from these jurisdictions, and prepare strategies accordingly when planning transactions in domestically sensitive sectors with such investors. 

[1] The non-binding offer was reportedly made by KKR in the end of January – beginning of February 2023. The MoU was signed mid-August 2023. The official, binding offer to acquire TIM’s assets was submitted by KKR on 16 November 2023.

[2] As detailed below, the other case is the investigation opened by the Spanish government into the proposed acquisition of Telefonica by Saudi Arabian group STC.

[3] KKR committed, inter alia, to retain all research, maintenance and monitoring activities related to the target assets in Italy, and create an internal security task force to oversee activities of the company holding the assets. In addition, the Italian government will take part in defining strategic choices related to the assets to ensure effective state supervision.

[4] In October 2017, the Italian government imposed conditions on Vivendi’s 24% shareholding in TIM, which included setting up a security organization in charge of decision-making processes pertaining to strategic activities and the network. In 2021, when KKR submitted an initial bid to acquire certain assets of TIM, which did not go through, the Italian government immediately reacted with a promise to intervene by using its FDI screening powers.

[5] The MoU was also signed with the Italian Ministry of Economy and Finance, whereas the FDI screening authority rests with the Italian government.

[6] As KKR submitted an official bid to acquire TIM’s assets in October 2023 and FDI application was likely submitted shortly thereafter, it took approximately three calendar months for the Italian government to comprehensively assess and approve the deal. This is an extremely short timeline given that the Italian government had up to 110 business days at its disposal to evaluate the transaction, which it did not fully utilize.

[7] For example, on 5 October 2023, the French government blocked the proposed acquisition by Flowserve, a US valve manufacturer, of French subsidiaries of Velan, a manufacturer-supplier of valves for French nuclear submarines and reactors, due to concerns of the US government having access to sensitive information and prohibiting export of equipment. For more detail, please refer to our October 2023 update. Also, as described in our previous post, in November 2023, the Italian government prohibited the acquisition of ‘Microtecnica’, an Italian subsidiary of the US company ‘Collins Aerospace’ (owned by ‘RTX Corporation’), a company engaged in aerospace components, by a high-tech aerospace, defense and space company in which the French government is the largest shareholder.

[8] In September 2023, the Spanish government was said to be considering imposing certain mitigating remedies on the acquisition.

[9] The partnership agreement between the companies drew FDI scrutiny as it enabled e& to appoint its CEO as Vodafone’s board member as well as granted e& the right to further increase its 14.6% stake in one of the major UK mobile network providers up to 25%. At the same time, once e& reaches at least 20% in Vodafone, it will be able to appoint another board member.


Paul Johnson is a partner in Baker McKenzie Brussels' European & Competition Law Practice. He is an English qualified solicitor and has been practicing in Brussels and the UK for almost 15 years. Paul regularly represents clients on competition matters before the European Commission and has provided competition law advice with respect to over 100 jurisdictions around the world. Paul has extensive experience in all areas of EU competition law, including multi-jurisdictional and EU merger control (notifications and third party complaints), foreign investment review, joint ventures, cartels, abuse of dominance, distribution and other commercial relationships.


Beau is an Associate in the Antitrust and Competition Practice in Belgium.


Pavlo is a Junior Associate in the Antitrust and Competition Practice in Ukraine.