The proposed legislation requiring more disclosures from foreign suitors of German companies has taken a new turn.

In response to a request from the European Union, the German government is rewriting the bill draft. The changes will make the deal approval process easier for foreign bidders based in EU member states.

"There is an agreement among the ministries not to interfere with the free flow of capital within the European Union," says Albert Meyer, a counselor on anti-money laundering policies and financial regulation at the German Embassy in Washington, D.C.

The original draft had been approved by the German cabinet but had not yet been ratified by the Bundestag (German parliament). If the law goes into effect, it would require foreign acquirers such as corporations, private equity firms, hedge funds and sovereign wealth funds, to give the government more information related to their offers for German targets.

Bidders from the U.S. and other non-EU member nations that bid for German companies, though, would have their offers subjected to more scrutiny.

The German process of proposed deal oversight, assuming the bill becomes a law, would be similar to that of the Committee on Foreign Investment in the United States, but would take less time and require involvement from more government arms, says Meyer. Foreign buyers would have to wait a total of 60 days for a seal of approval from the government. During that period, several offices — the economics, finance and foreign ministries and possibly others — have looked at the buyers' financing and time frames for their proposed acquisitions, as well as their strategic aims for the companies they want to acquire.

Meyer said the government ministries held discussions about the bill in November and December and another cabinet meeting about the issue will likely be held, but he did not know if one had been scheduled.

Many have speculated that the German bill was a response to the government's historical attitudes toward foreign private equity firms and hedge funds. After all, German officials had pushed for the hedge fund industry to create a best practices code during the country's G8 presidency in 2007.

In a memorable 2005 incident, Franz Muntefering, former vice chancellor and minister of labor and social affairs, declared hedge funds, private equity firms and foreign investors were "locusts." Muntefering made the comment after U.K. hedge fund The Children's Investment Fund Management threw a wrench in Deutsche Börse's attempt to acquire the London Stock Exchange Group and also brought about the resignations of Deutsche's chairman and chief executive.

However, German attitudes toward the private equity world are changing, due in no small part to the success of domestic firms. According to the German Private Equity and Venture Capital Association, German firms made €1.85 billion during the first half of 2007, up from €939.3 million in the first half of 2006.

Meyer says the bill was not the result of a fear of takeovers by foreign investors or sovereign wealth funds from countries such as China and the United Arab Emirates. "I don't think it's against sovereign wealth funds per se. The feelings of our politicians might be influenced by concerns about the behavior of state-owned enterprises, especially big Russian companies in the energy sector."

Russian energy giant Gazprom, which is controlled by the Russian government, has in the past shut down oil and gas pipelines supplying former Soviet republics such as Ukraine and Estonia, when those countries had diplomatic disputes with Russia. Also, the Russian natural resources ministry reportedly pressured BP and Royal Dutch Shell to sell their stakes in Russian joint ventures to Gazprom.

Last week, Ukrainian energy officials met with Gazprom management in order to discuss changes in gas supply agreements.

"The talk is about state-owned enterprises in the energy sector, and I think especially Gazprom," says Meyer. "Politicians are concerned about them making investments in the German energy sector. I don't think U.S. politicians would be happy either if Gazprom wanted to invest in energy assets in the U.S."

Energy industry Law and regulation