UK confirms tougher national security merger control regime

New "national security and investment legislation" is among the policy proposals contained in a briefing document (130-page / 399KB PDF) published to coincide with this week's Queen's Speech and state opening of parliament. The new rules would allow the government to block or impose conditions on transactions which pose a risk to national security, including acquisitions of assets, as well as of businesses.

The plans are not new, having been consulted on by Theresa May's government last year. However, the proposed power is an extremely wide-ranging one, applicable to all sectors of the economy and businesses of any size "reflecting the need for flexibility to address national security risks wherever they arise".

The government said in its briefing note that its plans were consistent with regimes applicable around the world including countries such as Australia, Japan, Germany and the United States.

"The vast majority of transactions raise no national security concerns and the government expects to quickly rule out national security risks in most cases, allowing parties to proceed with certainty," it said.

There have been 10 public interest interventions on national security grounds under the existing rules since 2002, the government said.

The government's existing powers to intervene in mergers with implications for national security were bolstered by the introduction of lower thresholds for intervention in certain sectors in June 2018. Those powers sit within the existing UK merger control regime, which is operated by the Competition and Markets Authority (CMA) and primarily intended to prevent mergers that may substantially lessen competition in the UK.

To date, the CMA has applied the new thresholds in three deals: Gardner Aerospace Holdings/Northern Aerospace, Connect Bidco/Inmarsat, and Advent International/Cobham.

The system envisaged by last year's consultation would operate independently of the CMA's merger control regime, and would be overseen by a senior Cabinet minister. The minister would have the power to prohibit or impose conditions on a contemplated acquisition, or even to require the reversal of an acquisition that has already been completed. Sanctions would be available for non-compliance.

A voluntary notification system would be put in place allowing businesses to flag transactions with potential security concerns to the government, although the minister would also be able to call in other transactions for review where there is a reasonable suspicion that it may pose a risk to national security. A "safeguarding" mechanism would be put in place to enable affected businesses to appeal. The government is targeting the new power at "hostile parties" who seek to acquire ownership of or control over businesses, assets and other entities that have national security implications, according to the briefing document. It will allow the government to "[protect] our national security while ensuring the UK remains a global champion of free trade and investment".

Competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law, said: "The express reference to an 'economy-wide' regime covering 'all sectors' and applying to 'businesses of any size' might suggest even more far-reaching reforms are contemplated than previously announced. In addition, the briefing document does not specify if the 'notification system' will still be voluntary, in line with earlier proposals".

Davis said: "Under the standalone regime proposed last year, which would apply to 'core area' industry sectors if certain 'trigger events' occurred, the government expected to receive about 200 notifications a year, of which around 100 would be called in and 50 would likely be subjected to an intervention. A more sweeping new regime could inflate these numbers and increase deal risk, particularly for foreign investors".

"Such an intrusive approach is perhaps surprising given the UK government’s desire to attract inbound investment after Brexit. UK businesses and foreign investors will no doubt keenly await further clarification from government," he said.