Simen Klevstrand
Haavind, Oslo
​​​​​​​s.klevstrand@haavind.no

Marianne Henne Møller
Haavind, Oslo
​​​​​​​m.moller@haavind.no

Veto against Rolls-Royce divestment highlights hidden risk in Norway’s FDI screening rules

On 23 March 2021, the Norwegian Government blocked the sale of Bergen Engines, a Rolls-Royce subsidiary, to a Russian-controlled buyer. The transaction did not trigger a mandatory filing, but the government made use of its far-reaching powers to screen and block foreign direct investment (FDI) in Norwegian companies.

In contrast with FDI screening rules in many other countries, the Norwegian rules are not confined to specific sectors. The Norwegian Government has the power to block any transaction it considers could present a ‘not insignificant risk of the threat to interest of national security’. In principle, the Norwegian Government has a general, and essentially unlimited, power to intervene against any transaction on national security grounds.

Mandatory filing under the Security Act applies only to specific and pre-determined companies that have been brought within the scope of the law by way of an individual decision addressed to the company. Typically, these are:

• companies handling security-graded information;
• companies with information, systems and similar of significance to national functions; and
• companies of significance to fundamental national functions.

Acquisitions of a ‘qualified share’ of such companies, which have been brought within the scope of the law, have to be notified and approved prior to closing.

The Bergen Engines case involved a transaction falling outside the targeted notification regime. Bergen Engines is a Norwegian supplier of maintenance and repair services on marine diesel engines. At the time of the relevant transaction, the company was owned by Rolls-Royce. The buyer was TMH, an engineering company in rail transport technologies based in Russia. TMH was not directly controlled by the Russian state, but the owners had alleged links to Russian authorities.

The decision to veto the sale to TMH was based on traditional national security concerns. The government referred to the risk of Russia’s military capacities being strengthened as a consequence of Russia getting access to know-how and technology of strategic importance.

Following the veto, how should investors and vendors deal with investment review risk in Norway?

If the target is located in Norway, or has any subsidiaries in Norway, the first question will be whether such target companies have been made subject to the National Security Act by way of an individual decision. If so, a mandatory filing may be triggered.

Assuming that no mandatory filing applies, the question is whether the transaction could potentially give rise to any national security concerns, given that the power to intervene is not limited to targets in specific sectors or to non-EU buyers.

In some transactions, it may be advisable to informally contact the authorities in an attempt to obtain an (informal) approval. There is no formal procedure in place for submitting voluntary notifications, however, so the government will continue to have the power to intervene (by blocking the transaction or imposing remedies) even if the parties have obtained an informal confirmation that the authorities have no concerns.

The risk in these transactions must be assessed on a case-by-case basis. Relevant points to consider include whether the target is involved in the production of products which are subject to export control or is active in a sector that could be considered sensitive by Norwegian authorities.

Although clear guidance is still missing as to which sectors may be considered sensitive, it seems fair to assume that sectors which could be said to involve critical infrastructure in some form (such as energy supply or transmission) or critical technologies (such as IT security) could be considered to be sensitive.

The Norwegian FDI screening rules are currently under review. It is expected that the new rules will expand the mandatory filing regime, but we will have to wait and see whether the Government will retain its essentially unlimited power to veto any foreign investment on national security grounds.