China State Grid targets IFM’s German transmission system stake

The company’s offer for 20% of 50Hertz would bypass Germany’s foreign investment review laws, which apply to bids for stakes topping 25%.

China State Grid has begun talks with Australian fund manager IFM Investors over the acquisition of a 20 percent stake in German regional transmission system operator 50Hertz.

The move would halve IFM’s 40 percent share in the group and would give the Chinese state-backed power company an equal footing in 50Hertz with IFM, behind Belgian operator Elia, which owns 60 percent of the transmission system operator.

However, Elia could scupper State Grid’s bid with its take-up of pre-emption rights. The company is currently examining this option, although it warned this could take about two months, Elia revealed in its annual results on Friday.

State Grid’s planned acquisition of 20 percent of 50Hertz would fall just under the 25 percent threshold set by the German government to analyse takeovers by foreign companies. Germany last year increased the review period to scrutinise acquisitions from outside the European Union for up to four months – from two months – and extended its Foreign Trade Regulation Act, which covers the defence industry and cyber-security matters, to include critical infrastructure sectors.

A German government spokeswoman on Friday acknowledged the interest by State Grid but rejected suggestions the government is looking to find or negotiate alternatives.

“However, we are always – this applies to all companies or takeovers or even business transactions – ready to talk, if there are interview requests,” she said. “In this case, I can confirm that interview requests existed and discussions were conducted. But these are, as always, internal discussions, the content of which we give no information. Of course, all mergers and purchases must comply with normal regulations.”

The government added that “there is rarely anything in legislation that relates specifically to a country”.

Elia and IFM have owned 50Hertz since 2010, when they paid Vattenfall just more than €800 million for the company, a deal thought to consist of around €450 million of equity and €350 million of debt. 50Hertz is one of Germany’s four power transmission system operators and its grid covers an area of about 10,000km.