Under the changes, which came into force on Monday, the government can intervene in mergers or acquisitions involving companies with more than £1 million UK turnover in three sectors: where the company is developing or producing items for military or military and civilian use; quantum technology, and computing hardware. The threshold limit has been brought down from £70m, but that higher threshold still applies to other sectors.
Competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law.com, said government intervention in mergers for the purposes of protecting national interests was currently a hot topic around the world and the UK’s reforms should be seen in the context of its preparations to leave the EU.
Following the new rules, which were first flagged last year, ministers will have the power to intervene in any mergers meeting the proposed new thresholds on the grounds of national security.
“Parties may wish to voluntarily notify any mergers brought into scope of a public interest intervention as a result of the proposed new thresholds,” said Davis. “Those who do not notify such mergers to government run the risk that the Secretary of State may intervene and the merger may ultimately be blocked or unwound.”
The Competition and Markets Authority (CMA) said it did not expect the proposed amendments to bring about a material change in its approach to the assessment of mergers on competition grounds. Merger notification remains voluntary and the substantial lessening of competition test for the CMA to review a merger on competition grounds is unaffected. The CMA did however say that it is likely that more transactions in the three relevant sectors will technically come under its jurisdiction given the very low financial threshold.
Davis said this was likely to add to the CMA's workload post-Brexit when it is expected that the CMA will have to deal with a significantly increased volume of cases as a result of parallel UK investigations on international mergers alongside the European Commission.
Guidance issued by the Department for Business, Energy and Industrial Strategy confirmed that for mergers brought into scope of government intervention as a result of the amendments, companies might wish to voluntarily notify government as they are currently able to do for mergers which already qualify for intervention.
The UK government has also consulted on a proposed mandatory notification regime for foreign investment in “essential functions” such as the civil nuclear and defence sectors.
Meanwhile, EU countries and institutions are planning on extending scrutiny of foreign investments, particularly from China and other non-market economies. An EU parliamentary committee voted last month to extend the industries covered to include media, election infrastructure, data analysis, biomedicine and automobiles. European Commission plans to better co-ordinate government action on policing foreign investments in strategic industries are aimed at curbing the influence of foreign governments. Negotiations between the arms of EU government are set for July.
Davis said that companies planning a merger should review any transactions in the pipeline and assess whether they involve the acquisition of a company classed as a ‘relevant enterprise’ and meet the new thresholds.