Government Control of Cross-Border M&A: Legitimate Regulation or Protectionism?

Abstract

Recently, much light has been shed on the conditions under which Foreign Direct Investment (FDI) inflows are beneficial to the receiving state and its citizens. However, when inbound FDI takes the form of cross-border mergers and acquisitions (M&As, as opposed to 'greenfield investment'), nations often see their interests affected. Whereas favouring domestic over foreign ownership is restricted to the field of national security in some countries, other governments seem to perceive a general threat with any takeover from abroad. Accordingly, an increasing number of states have installed control mechanisms that attempt to screen cross-border takeovers for their compatibility with national interests. This article consists of both a legal and an economic analysis. First, an inventory is made of national policy instruments that provide a nation with control over the takeover of domestic firms by foreign investors. Second, we examine the extent to which national control instruments are compatible with international economic law, including regional integration agreements. Third, we discuss the economic reasons for cross-border M&A and the reasons for government control of these transactions. Consisting of both normative and positive elements, the analysis is not restricted to questioning whether and why governments should provide for state control of cross-border takeovers; rather, it extends to the actual motivation behind state interference. The article concludes with several policy proposals.

The relevance of political affinity for the initial acquisition premium in cross‐border acquisitions

“…The leeway of governments to act in a discriminatory manner against FDI activities is particularly large (Enderwick, ; Heinemann, ). Anecdotal evidence and statistics show that most countries, including those that are considered to be more liberal (in particular, the United States; see, e.g., the FDI regulatory restrictiveness index; Kalinova, Palerm, and Thomsen, ), have de jure regulations that discriminate against foreign investors in addition to informal and less visible means of restricting FDI (e.g., country‐specific norms or particular ownership structures) (Heinemann, ). In particular, FDI in the market entry phase is concerned by such negative discrimination.…”

“…When entering a host country via an acquisition, foreign firms are usually exposed to substantial challenges with regard to not only the economic or cultural environment, but also the political context (Boddewyn and Brewer, ). While countries often encourage inflows of greenfield investments through a favorable legal regime, direct subsidies, or other means, restrictions on the foreign acquisitions of domestic firms are very common (Enderwick, ; Heinemann, ). Cross‐border acquisitions can raise concerns for the host governments.…”

Surges and stops in greenfield and M&A FDI flows to developing countries: analysis by mode of entry

“…19 Aleksynska and Havrylchyk (2013) estimated that for the period 1996-2007, 56% of all FDI into developing countries originated from developed countries. 20 Likewise, government interventions against the takeover of domestic companies through cross-border M&A have become more common recently (Heinemann 2012). political preference for GF investments, which are perceived to be more beneficial than M&As (Heinemann 2012). Domestic unrest can also deter some types of FDI or trigger the pullout of investors from some markets (Schneider and Frey 1985).…”

Organizacje globalnego zarządzania ekonomicznego w ładzie policentrycznym na przykładzie polityki wobec inwestycji zagranicznych. Wyzwania i inicjatywy w obszarze koordynacji polityki wobec bezpośrednich inwestycji zagranicznych

“…Względy bezpieczeństwa stały się w pokryzysowych realiach często przywoływanym argumentem na rzecz działań protekcjonistycznych (Heinemann 2015). Zatem globalna koordynacja miałaby zapobiegać, z jednej strony, niezdrowemu wyścigo-wi w dół (race to the bottom) w zakresie standardów i regulacji, a z dru-giej strony, niszczącej rywalizacji w górę (race to the top) na zachęty i ich przelicytowywaniu.…”

“…Oczywiście na arenie międzynarodowej były już podejmowane prace na rzecz usprawnienia regulacji polityk wobec BIZ -istniejące prawodawstwo ogranicza zatem pole manewru i swobodę krajów w tym względzie. Kontekst międzynarodowy dla ponadgranicznych przejęć czy szerzej inwestycji zagranicznych tworzą różnorodne regulacje (Heinemann, 2015). Są to liczne umowy bilateralne BIT, porozumienia wielostronne jak OECD czy WTO w tym TRIM, GATS, regionalne ugrupowania integracyjne, jak UE ze swoimi przepisami odnośnie do kontroli fuzji, czy dozwolonej pomocy publicznej, a także inicjatywy normujące aktywność spółek pań-stwowych i funduszy majątkowych, których polityczne konotacje i brak transparentności wywoływały wiele kontrowersji jak Zasady Santiago, czyli GAAP Generally Accepted Principles and Practices (WIR, 2009).…”