U.K. Widens Scope of M&A Probes on National Security Grounds

(Bloomberg) -- The U.K. plans to give ministers more powers to intervene in takeovers of British companies and assets where it deems national security to be at stake.

The proposals widen the scope for government intervention to include small companies, business units and individual assets, including intellectual property, the Department for Business, Energy and Industrial Strategy said Tuesday. The regulations would apply to both foreign and British purchases of U.K. assets.

“Our merger and takeovers rules need to be responsive to technological, economic and national security changes,” Business Secretary Greg Clark said in a statement. “These proposals will ensure we have the appropriate safeguards to protect our national security whilst ensuring our economy remains unashamedly pro-business and open to high levels of foreign investment.”

The number of interventions is expected to rise as a result of the new rules, and the Business Department says it’s prepared for that. It anticipates examining about 100 deals a year and to undertake some kind of remedy in about half of those, according to a briefing to reporters. It intervened in just one case last year -- the takeover of digital radio developer Sepura Plc by China’s Hytera Communications Corp. This year’s tally is also one: the attempted takeover of Northern Aerospace Ltd. by Chinese-owned Gardner.

‘Rare’

Even so, the government said it expected to block deals only in “rare circumstances.”

New rules remove for all sectors the requirement that a new entity formed from a merger must have a 70 million-pound ($92 million) turnover or account for a 25 percent market share before the government can intervene. They will also now apply to all industries as well as assets and units of companies, rather than just whole corporations.

Until now, interventions have been governed by the 2002 Enterprise Act, which allows them when a proposed merger would affect media plurality, national security or public contracts. The business department made changes earlier this year that removed thresholds on market share and turnover for some companies, but Tuesday’s proposals widen that to all sectors.

While they will apply to both foreign and British-led takeovers, the government first announced its intention to change the rules in 2016 when it approved the construction of a new nuclear power station in southwest England by Electricite de France SA, with considerable Chinese investment.

The department plans to list sectors where it anticipates having more of an interest in intervening -- including energy, defense and transportation.

The government retreated from earlier plans to require companies to report proposed deals to the department. Instead, companies will be able to do so voluntarily in order to avoid potential intervention further down the line when a deal is more advanced. The government would then have a mandatory time period within which to respond to give certainty to the businesses.

Ministers also plan to introduce a criminal offense so that directors could face prison sentences of as long as five years if companies breach undertakings they make to secure government approval for a deal.

©2018 Bloomberg L.P.