A British Poison Pill for M&A Bankers?

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Britain is at pains to show that reforms aimed at thwarting “malicious investment” are compatible with a parallel drive to bring foreign money into the U.K. post-Brexit. Although the sweeping merger intervention powers unveiled on Wednesday contain some checks and balances, there’s still major uncertainty over how they’ll work in practice.

The U.K. is scrapping some existing constraints on its ability to review investments on national security grounds, extending the regime’s scope beyond the acquisition of whole companies to the purchase of assets and intellectual property. The political backdrop is lawmakers’ concern about the presence of China in U.K. infrastructure, but it’s notable that the world has also become more commercially protectionist in the four years since the reform was first mooted.

There is also a new requirement forcing companies in certain sectors to notify the authorities if a deal is in the offing — or else face fines or imprisonment. The cherry on top is retroactive power to review any transaction that wasn’t originally submitted for assessment.

Such measures may be necessary but aren’t cost-free.

An opaque merger review process, conducted by the government rather than an independent body, risks misuse for wider political purposes or to protect companies that lobby to avoid takeover. The bill does specifically tie the new powers to questions of national security, and the government has resisted the temptation to introduce a more vague “national interest” test, as lawyers at Herbert Smith Freehills point out. There is also an explicit commitment not to use the new laws for “broader economic reasons.” We shall see.

The measures could nevertheless act as a deterrent to welcome investment, damaging job creation and weakening competition. Is investing in the U.K., especially in its tech sector, worth the hassle of a likely state probe? In this context, there’s an urgent task to clear up precisely which companies are subject to the mandatory notification requirement if they enter talks to be bought either whole or in part.

The government names 17 relevant sectors. It’ll consult on which parts of these industries are covered, as there is clearly room for confusion about individual cases. A pledge to assess transactions within 30 days as part of a “slicker and quicker” clearance process does not preclude a longer timetable for transactions deemed worthy of scrutiny.

It’s probably no coincidence that the government has in the same week established a separate unit to attract foreign investment, as if this will be an antidote to a more interventionist regime. That new department now has its work cut out. Its creation doesn’t lessen the imperative to review transactions with speed and to be as transparent as possible about the reasoning for intervening in a deal should the powers actually get invoked.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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