Government proposes greater scrutiny of takeovers involving 'critical national infrastructure'

The proposed powers would be used "only for the purposes of protecting national security" and would allow the government to intervene in transactions which raise unspecified "national security concerns", according to explanatory notes published alongside the Queen's Speech marking the state opening of parliament this week.

"This will ensure that foreign ownership of companies controlling important infrastructure does not undermine British security or essential services," the government said in its note.

"Our liberal, open economy depends on us marking sure that investment in critical assets is safe. The proposals will ensure that the government has the information it needs to assess threats to national security and the powers to act on them," it said.

"I think many would welcome more detail on what the government envisages in practice, as the Enterprise Act already allows for intervention by the secretary of state in merger decisions on grounds of national security," said competition law expert Robert Eriksson of Pinsent Masons, the law firm behind Out-Law.com.  

“It is unclear what will constitute ‘essential services’ or ‘critical infrastructure’. There will also be a grey area around what will amount to 'significant foreign investment' or 'foreign ownership'. An issue arising in attempts to control foreign acquisitions in a globalised economy is the lack of clarity about what is a 'foreign' acquirer or a 'national' target.  It would be interesting to know, for example, whether the government would rely on the UK Competition and Markets Authority (CMA) predecessor, Office of Fair Trading's, report on infrastructure ownership and control stock-take in considering how to define the terms in question," he said.

Last year, the CMA warned that allowing government ministers to protect certain industries from foreign takeovers would damage the UK's reputation and its ability to attract investment. The CMA was responding to an inquiry launched on 1 August 2016 by the then-Business, Innovation and Skills Committee into how interventionist the government should be in preventing foreign takeovers of UK companies.

"The CMA rightly stressed the importance of avoiding merger decisions being influenced by political considerations, as that removes transparency and independence in the decision process," said competition law expert Robert Eriksson.

"The Brexit Competition Law Working Group and the CMA have cautioned against broadening the non-competition criteria in UK merger control, as further political intervention in transactions could risk having a chilling effect on M&A activity," he said.