New and potentially far reaching investment control regime for M&A transactions in the telecommunication sector in the Netherlands
A new Act on undesirable influence in telecommunication businesses (Wet ongewenste zeggenschap telecommunicatie), introducing a new investment control regime for the telecom sector, entered into force on 1 October 2020.
The Act adds a section to the existing Telecommunication Act, introducing a notification obligation for certain transactions in the Dutch telecommunication sector and powers for the Ministry of Economic Affairs and Climate to prohibit transactions if deemed necessary to protect national security.
Broad scope of the new investment control regime
The new provisions apply to a relatively broad scope of telecommunication businesses, inter alia (public and private) communication networks and/or services providers, hosting services, internet exchange points, trust services for electronic transactions and data centres.
The new provisions include a limited list of conduct that is considered a national security threat. This list, in essence, regards the ability of parties to disrupt or distort telecommunication services in the Netherlands and affects, inter alia, services of the following scope:
- Internet and/or phone connections of 100.000 end users
- 6% of the internet service in the Netherlands
- Internet exchange points that connect 300 autonomous systems
- Data centres with a power capacity of > 50MW
- Hosting providers that service > 400.000 .nl domain names.
Furthermore, the regime applies to transactions involving specific (ultimate beneficiary) persons or States that are either black-listed by the UN, the EU or the Netherlands. It also applies to persons for which reasons exist to believe that they could intentionally or negligently disrupt or distort telecommunication services in the Netherlands.
The investment control regime comes into play when a party directly or indirectly acquires significant influence (overwegende zeggenschap) in a telecommunication business in the Netherlands.
This threshold is lower compared to thresholds that are generally used in merger control regimes which often require the acquisition of a form of ‘control’ over the business.
The new investment control regime is triggered inter alia when parties that can directly or indirectly control 30% (or more) of the voting rights in a business. This means that parties that acquire or own less than 30% of the voting rights in a business, but act in concertation with other voting right holders and therewith hold (in consortium) 30% or more voting rights, could fall within the scope of the rules.
A new notification obligation
Parties that intend to acquire significant influence in a telecommunication business in the Netherlands will need to notify the Ministry of Economic Affairs and Climate. The Minister will have in principle 8 weeks to render a decision whether or not to prohibit the transaction. This period can, however, be extended.
The legal consequence of a prohibition to acquire significant influence is that the transaction (the transfer of shares) will be null and void, (except if shares are purchased on a stock market (e.g. a public offer), in which case the acquirer is constrained from exercising its acquired voting rights and is compelled to divest the acquired shares until a level below the 30% threshold).
As there is no standstill obligation, the transaction can be effectuated (closed) before the decision of the Minister. In such case, the Minister will render a decision ex post. If a prohibition follows after the closing date of the transaction, the voting rights of the acquirer will be suspended and the acquirer is compelled to divest the acquired shares until a level below the 30% threshold.
Ex officio investigation
The Minister can also decide ex officio to investigate possible significant influence in a telecommunication business. In that regard, the new provisions include powers for the Minister to request information and issue decisions imposing divestment of interest in the company and the suspension of voting rights.
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