UK Proposes Heightened Oversight Over Certain M&A Transactions to Protect National Security
By: Gwenn Barney
The United Kingdom government proposed changes to its rules on mergers and acquisitions this week to give itself more oversight over deals that have national security implications.
The proposed rule will allow the government to intervene in a merger or acquisition involving a UK company with at least £1 million ($1.32 million) in revenue in the industries of military or dual use product design and manufacture, computer chip design, and quantum technology. Prior to this proposal, the turnover threshold for such an intervention was £70 million ($92.21 million) or where the effective market share of the combined business reached 25 percent or more.
Since the implementation of the £70 million turnover threshold in the Enterprise Act 2002, the UK government has intervened in deals 11 times.
This proposed policy change represents a shift in ideology for the U.K., which has traditionally been open to acquisitions of U.K. businesses by foreign buyers. Analysts have pointed to the combination of a weakened pound lessening the cost of U.K. companies for foreign buyers and an increasing number of foreign acquisitions by Chinese companies as the reason behind the proposal.
The government will accept comments from the public on the proposed rule change until November 14, 2017. It is also considering other changes to merger and acquisition oversight for the military and technology sectors including a “mandatory notification regime for foreign investment” in these industries and will accept comments from the public on these potential changes until January 9, 2018.
The U.K. proposal for stricter scrutiny of foreign investment follows a similar proposal made this past summer to the EU’s European Commission and another plan implemented by Germany during the same period. In the EU, individual member states choose whether or not to have a foreign investment review plan. Currently, 12 of the 28 EU member states have adopted a foreign investment review plan. The EU proposal aims to standardize the criteria that member states use in evaluating whether a foreign investment opportunity puts security or public order at risk. While the EU proposal remains in limbo, individual member states in the EU have moved forward with the creation or refinement of their own foreign investment review standards. Germany’s implemented foreign investment review plan is triggered by the acquisition of 25% or more of the voting rights in a German company by a non-EU purchaser. In the case of such an acquisition, the German government may review the transaction to determine whether it presents a threat to public order or national security.
Additionally, the U.K. proposal comes on the heels of the recent action by the U.S. in September to block the $1.3 billion acquisition of Lattice Semiconductor Corporation, a publicly-traded microchip producer based in the United States, by Canyon Bridge Capital Partners, a Chinese state-owned private equity firm, citing national security concerns and signaling that the U.S. intends to closely scrutinize international transactions involving industries with U.S. national security sensitivities; in particular technologies relied on by the U.S. military.