UK: UK Merger Control: A New Regime For State Intervention, Foreign Acquisitions And National Security

The UK Government has published proposals to extend its powers to scrutinise mergers and acquisitions with national security implications. This move is part of a wider global debate on state intervention in foreign investments and reflects a more general trend within the European Union (and some of its member states), Japan, the United States, and Australia to increase scrutiny over foreign acquisitions. 

The proposals could mean greater scrutiny, some additional complexity and timing implications and, at least initially, some uncertainty around how the Government will apply the new test and which transactions it calls in for review.

The Government is requiring comments on the proposals by 16 October 2018.

The current regime

To date, the UK Government could only review mergers where the target's turnover exceeded £70m or where the transaction resulted in the creation or increment to a share of supply of 25 percent. Mergers below that threshold were generally not reviewable. 

Wind of change

Last month the UK Government amended the Enterprise Act 2002 by reducing these thresholds where transactions affect military, computing hardware or quantum technology. For those areas, the target turnover threshold was reduced from £70 million to £1 million and the alternative share of supply test of 25 percent no longer needs an increment. The amended thresholds empower the Government to intervene in mergers satisfying the above criteria but also apply to the jurisdiction of the Competition and Markets Authority (CMA) to review mergers on competition grounds.

To date, there has been one Governmental intervention under these new thresholds. Last June, following the announcement by Gardner Aerospace Holdings Ltd (a wholly owned subsidiary of Chinese Shaanxi Ligeance Mineral Resources) of its proposed acquisition over Northern Aerospace Ltd, the Secretary of State decided to intervene on national security grounds. Both Gardner and Northern Aerospace manufacture and supply parts used in the manufacture of aircrafts. The transaction was ultimately cleared by the Secretary of State on 19 July 2018, following a report by the CMA, after receiving further representations by the Ministry of Defence, on the competition and national security aspects of the transaction.

The proposed regime

The Government is now seeking to replace last month's changes and extend these measures by separating the foreign investment review from the merger control review and by removing the jurisdictional thresholds for the former altogether.

The main aspects of the proposed foreign investment regime are as follows:

  • The Government will have direct powers to call in transactions, impose remedies or conditions, or block or unwind transactions raising national security issues. The Government's assessment will be exclusively based on potential national security implications and, as such, the new regime will create a clear separation between competition and national security-related assessments.
  • This process will be de-linked from the competition-based merger control review undertaken by the CMA and is likely to be undertaken by a Government department (the consultation refers to a Cabinet-level minister as the key decisionmaker for the new regime).
  • There will not be a mandatory notification requirement but, similar to the CMA's system, there will be a voluntary notification system combined with the Government's monitoring of the market for potentially relevant developments.
  • Notified transactions will be subject to a 15 working day preliminary review period (extendable by an additional 15 working days). If at the end of this period the Government decides to open an in-depth national security assessment, the Government will have 30 working days (extendable by further 45 days) to decide whether to clear, block, or impose remedies on the transaction. Deals which are not voluntarily notified might still be called in within six months of closing.

Which transactions are caught?

The regime will apply to assets, such as IP rights, as well as businesses. Even loan agreements may be a trigger, where an asset secured as a collateral could itself give rise to national security concerns in the event of a change of ownership. 

In particular, the proposed regime will apply to: (i) the acquisition of more than 25 percent of the votes or shares in an entity, or of significant influence or control over an entity, even below a 25 percent shareholding; (ii) the acquisition of further significant influence or control over an entity through additional shares or votes or new or additional rights; and (iii) the acquisition of more than 50 percent of an asset, or of significant influence or control over such asset, even below the 50 percent threshold. The latter has been included as an anti-avoidance measure.

What constitutes a national security risk?

There is no definition of national security risk but more information about where certain trigger events may give rise to national security risks is already provided in the Government's draft Statement of Policy Intent, which is also currently subject to public consultation. The proposals make it clear, however, that they are aimed at the national infrastructure sectors, critical direct suppliers to the Government and to the emergency service sector, and certain advanced technologies.

Importantly, the target's turnover and share of supply tests which are used to establish jurisdiction for the CMA's merger control review are completely removed for the purpose of the Government's national security review. 

Process alignment

The timeline for reviews under the new regime is not entirely congruous with the timeline of a CMA's competition-based merger control review. Nevertheless, the Government aims to ensure that this review and the CMA's review take place in a co-ordinated fashion. This means that, when a transaction is scrutinised in parallel by the Government (to assess its national security risks under the new regime) and by the CMA (to assess its impact on competition), the Government may request that the CMA pauses its competition assessment pending the outcome of the national security assessment or may vary any undertakings or orders previously put in place by the CMA where these are inconsistent with the interest of national security.

How many cases are caught?

The Government expects there will be around 200 notifications each year under the new regime out of which around 100 will raise national security concerns requiring a full assessment. The Government expects that it will seek to impose remedies in around 50 of such cases.

These figures are quite high when compared to CMA merger reviews which currently run to between 50-100 in any given year and which are expected to rise by 30-50 cases annually as a result of Brexit where transactions previously notifiable to Brussels will fall under the CMA's jurisdiction.

When will it apply?

Comments on the proposals are requested by 16 October 2018. The Government has not provided any indication as to when it envisages the changes to come into effect. Given the crowded Parliamentary schedule due to Brexit, this may take some time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions