Estonian firm’s takeover by Emirati group tests joint EU defense rules

MILAN and WASHINGTON — Milrem Robotics, the European Union’s poster child for military robot development, is testing the bloc’s rules for keeping defense technology cooperation strictly a European affair, after the Emirati conglomerate Edge Group acquired a majority stake in the Estonian company.

Announced on the eve of last month’s IDEX defense exhibition in the United Arab Emirates’ capital Abu Dhabi, the takeover is meant to bolster Edge’s technological prowess in an “increasingly diverse and fiercely competitive marketplace” while underwriting Milrem’s international growth as part of the new ownership, the companies announced Feb. 15.

“A presence in Estonia also provides EDGE with strategic access to Northern Europe, increasing valuable opportunities for us across the continent and further afield, and strengthens our position as a serious global player in this sector,” Mansour AlMulla, the CEO of Edge, said in a statement.

Left unmentioned in the takeover announcement was Milrem’s role in the EU’s ecosystem for military robotics and other capabilities, nurtured through subsidies from Brussels and an understanding that knowledge gained collectively among member governments and their defense companies should remain principally in European hands.

Milrem spokesman Gert Hankewitz told Defense News the company erected “clear legal boundaries” to restrict the sharing of sensitive EU and NATO intellectual property with Edge, vowing that such information would stay “explicitly” with Milrem.

“The acquisition of Milrem’s shares was negotiated and concluded considering the specific requirements of current and upcoming EU [and] NATO programs where we already participate or plan to in the future,” he said.

The spirit of EU access rules for cooperative defense programs is restrictive by design, barring even close, democratic allies such as the U.S. from participating in technology-heavy programs, where haggling over the flow of intellectual property is expected to become a sticking point.

An Edge spokesperson declined to comment.

The future of iMUGS

Milrem gained a foothold in the EU-wide field of defense robotics through the iMUGS project, short for integrated Modular Unmanned Ground System, where the Estonian company leads a consortium of 13 entities hailing from seven European countries.

The European Commission awarded an iMUGS contract in 2020 worth close to $40 million to define a standard architecture for military unmanned ground vehicles, with Milrem’s THeMIS unmanned ground vehicle as the reference platform.

The program started under the aegis of the European Defence Industrial Development Program, or EDIDP, which funded a collection of defense projects in the 2019-2020 budget cycle to the tune of €500 million (U.S. $538 million). The push aimed to support “the competitiveness and innovation capacity of the Union’s defense industry,” according to the European Commission.

The regulation governing EDIDP projects, including iMUGS, states that companies are barred from participating if they are “subject to control by a third country or a third-country entity.”

But there is a loophole: Non-EU influence is permissible when the project’s host government gives certain “guarantees” to Brussels that the foreign ownership won’t undermine the bloc’s wider security interests, and that project-related information stays in the EU sphere.

The Estonian government, for its part, already signaled it would take up the case with Brussels.

When contacted by Defense News this month, the Estonian Defence Ministry noted that Milrem’s change of ownership had not been officially approved, as the transaction was still being concluded.

“The Estonian Ministry of Defence will assure that the participation of Estonian companies in EU defense industry programs follow EU rules,” a ministry spokesperson told Defense News. “If Milrem’s change of ownership is approved and such an assessment is deemed necessary, it will be done in accordance with the relevant EU legislation and in cooperation with the European Commission.”

Spotlighting a blind spot

The Milrem takeover by state-owned Edge, billed as the largest foreign investment in Estonia’s defense industry, spotlights what EU officials fear is a blind spot in the bloc’s exposure to foreign interests.

Leaders in Brussels have repeatedly urged all member states to adopt screening laws, especially with an eye toward Russian and Chinese business ties in the EU. So far, roughly two-thirds of the bloc’s 27 member nations have registered with the European Commission the existence of a national policy covering the screening of foreign direct investments, Defense News reported last fall.

Depending on the foreign investor, external control of key companies could directly challenge the vision of Europe’s strategic autonomy, Pieter Taal, head of the European Defence Agency’s industry strategy and EU policies unit, told reporters at the time.

The Milrem spokesman pointed to an existing organization within the Estonian government — the interagency Strategic Goods Commission — as playing a role in approving certain exports, including those to “non-allied partners” like the UAE.

The commission’s website indicates it focuses on enforcing export controls, as opposed to considering strategic ownership questions typically associated with foreign direct investment, or FDI.

The Estonian parliament, meanwhile, has prepared legislation for the government to scrutinize foreign direct investment, according to a Feb. 10 online fact sheet by the law firm Sorainen, which has offices in all three Baltic countries and Belarus.

“The primary objective of the new FDI regime is to screen both direct and indirect investments made by non-EU investors in strategically important and sensitive areas in Estonia,” Lauri Liivat, an attorney at the firm, told Defense News. “This means acquiring 10% or more of the shares or control in the companies falling under the regulation or relevant assets of such companies.”

While Estonian parliamentarians in January adopted the Foreign Investment Reliability Assessment Act, as the law is called, it won’t take effect until September.

Milrem, for its part, said it expects to keep its prominent role as a military robotics developer in the EU, even under Emirati ownership.

The responsible officer for iMUGS on the Estonian government side, Martin Jõesaar, backed that assessment, telling Defense News: “Milrem Robotics will continue to lead the EDIDP19 iMUGS project after the acquisition by Edge takes effect. Furthermore, they have no problem taking part in other EDF project in the future as long as they have methods in place to keep these projects clearly separate from the outside-of-EU owner.”

The acronym EDF is a reference to the European Defence Fund, a multibillion-euro pot that has since replaced the EDIDP scheme — with the same language on exceptions for third-country ownership.

It’s unclear if fellow European companies working with Milrem care about the implications of the Emirati takeover. Of those asked, only Krauss-Maffei Wegmann, which holds a minority stake in Milrem, responded. A spokesman told Defense News that the German armored vehicles specialist was informed of the new stakeholder mix, but he wouldn’t comment further.

A spokesman at the European Defence Agency in Brussels said it has no position on the matter, stemming from a policy of not commenting on individual countries and companies. A European Commission spokesperson did not return a request for comment.

Next up for a funding decision under EDF rules is a follow-on project to iMUGS, simply known as a second version, that would expand autonomy features to larger military vehicles.

According to Jõesaar, the nations involved in the project showed strong support for the next stage. More information is expected by the summer, but for now there will likely be more European states coming onboard, he said, and different financing alternatives will be considered to fund the program’s second stage.

In addition, the European Defence Agency in early February announced an Italian-led project focused on a common architecture for combat unmanned ground systems. Milrem’s THeMIS and Type-X platforms are part of the study lineup along with vehicles from Italy’s Iveco, Finland’s Patria and Germany’s Rheinmetall.