The European question

Author: | Published: 29 Mar 2017
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Victor Asenjo, senior legal counsel at Ferrovial Airports and Ferrovial Power Infrastructure in Madrid, assesses the challenges facing Japanese companies investing in Spain and the EU

Japanese outbound is on the rise. The country ranks third globally with 478 completed outbound deals since the beginning of 2017, trailing China with 785 transactions and the US with 1,902 deals. This has been powered, in large part, by increased pressure on listed companies to pursue growth overseas, as the Japanese domestic market has been shrinking. The Corporate Governance Code, introduced in June 2015, has also pushed listed companies to actively pursue mid-to-long-term growth in corporate value. This has led to the growing phenomenon of domestically-focused companies, such as consumer-good businesses and insurance companies, searching for opportunities abroad to pursue growth.

What areas of regulatory compliance do Japanese corporates need to be aware of when investing in Spain and the EU?

In Spain, and it's roughly the same elsewhere in the European Union, foreign investment is fully liberalised, which basically means that we have no entry barriers for foreign investors. That said, there are specific sectors of the Spanish economy which may be subject to further scrutiny or specific market regulations, such as defence, banking, insurance, life sciences, utilities, or telecoms, but that does not mean foreign companies cannot invest in those sectors. Spanish market authorities are simply responsible for regulation of specific market sectors considered strategic or relevant to the public in general which therefore have additional rules compared to non-strategic sectors.

What sectors have attracted most foreign direct investment from Japanese corporates, and what are some potential scenarios where regulators may enforce antitrust or competition rules?

There was a lot of Japanese investment in Spain back in the 1980s and 1990s, when companies bought mainly industrial companies in the automotive sector, but they experienced no opposition whatsoever from Spanish authorities. On the contrary, at the time, Spanish authorities welcomed any foreign investment in the Spanish economy, provided that it was made pursuant to EU and local regulations. A prospective Japanese investor choosing to invest in any EU jurisdiction where it has already a huge presence, by acquiring a potential or actual competitor and achieving a very significant percentage of the sales of a given market in a given location, may receive attention from the European Union Competition Authority or national Competition Authorities consistently with generally applicable competition regulations.

Japanese corporates have been acquiring assets in Europe for over 30 years. Have there been cases of strict antitrust or foreign investment scrutiny?

Traditionally, Japanese investment in the EU and specifically in Spain has targeted the industrial sector, but I have not seen any particularly protracted antitrust procedures per se. That will depend on the type of deal implemented and the market share inherited as a result of the deal. Japanese investment in the EU is now 30 years old, but they have not tended to dominate any particular market. I cannot remember cases where they have suddenly become the dominant operator of any given economic sector. If they did, they would of course be facing antitrust procedures, but not necessarily any more cumbersome than they would be if the investor came from any other foreign or EU jurisdiction.

What kind of regulatory issues should Japanese corporates be aware of when investing in listed companies in Spain and in EU member states?

If a Japanese investor were to acquire a listed company, they would be subject to specific listing regulations issued by the Spanish Stock Exchange, which may force them to implement a public tender offer provided certain thresholds are met, but that is irrespective of the nationality of the investor. There is no such thing as golden shares depending on the nationality of the investor, and even if there are regulations to be complied with, they are normally unrelated to the investor's nationality.

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