U.K. Gov’t Turns a Spotlight on Mergers That Could Impact National Security

By Kevin McCandless | March 22, 2018 | 4:10 AM EDT

Britain’s Business and Energy Secretary Greg Clark speaks in the House of Commons. (Screen capture: YouTube)

London (CNSNews.com) – Scrutinizing business mergers on national security grounds will become much more common in Britain, if proposals officially finalized last week are approved by parliament.

After a wide consultation, the government concluded in publicly released documents this month that it needs to amend existing laws to better look at – and possibly stop – mergers in areas of the economy that are vulnerable to espionage, sabotage or inappropriate leverage by outside forces.

President Trump caused controversy this month by blocking a Singapore-based maker of computer chips from acquiring Qualcomm, its rival company in the United States.

Citing national security concerns, he ended what has been claimed would have been the biggest tech deal ever, prompting accusations of protectionism.

He declared in a statement that there was “credible evidence” that Broadcom, the foreign chip maker, might take actions that threaten U.S. national security.

Under the new proposals, the British government would now be able to intervene legally in mergers or acquisitions involving small companies operating in quantum and other types of computing, as well as in technology used in military or dual civilian-military use.

Applicable law passed in 2002 allows intervention in cases where the company or combined companies concerned have a minimum of some $98 million in British total revenue. The new proposals would widen that to include companies with revenue of $1.4 million or more in these specific areas..

A standard, additional requirement for a 25 percent share for the “new” combined company in buying or selling products in any one market would be dropped – although this could also be applied in a diluted form if a targeted company did not meet the revenue requirement.

When the consultation period began last October, Business and Energy Secretary Greg Clark said Britain had a proud record of free trade but every so often it needed to close up “loopholes” in the way it handled mergers.

“This is what these proposals do in the area of national security,” he said.

In the consultation documents, the government reiterated that the new rules were not intended to constitute economic nationalism or protectionist policy but were underpinned by national security concerns.

“The government will not act with bias when investigating a specific investor or transaction for national security concerns,” it said.

The Department for Business, Energy and Industrial Strategy estimates that anywhere from five to 29 more mergers or acquisitions would fall under these new criteria each year. Of these, only between one and six would require the government to more closely examine them.

Since the 2002 legislation was enacted, the government has reportedly intervened formally in only seven instances on grounds of national security.

Subject to parliament’s approval, the department expects that the changes to the mergers thresholds will come into force in a matter of weeks.

Although individual responses to the initial proposals were not made public, consultation documents did not describe them as unanimously supportive.

Feedback from groups and firms who felt the new $1.4 million threshold was too high was said to equal those who thought it was too low, particularly among trade associations.

The government’s response to a second part of the consultation – which involves more longer-term changes to the way mergers are handled in terms of national security– has not yet been published.

The Department for Business said earlier it was considering introducing “a mandatory notification regime for foreign investment in certain parts of the economy which are critical for national security, such as the civil nuclear or the defense sector.”

Under current law, businesses are usually not required to notify the Competition and Mergers Authority during mergers or acquisitions.

The British Private Equity and Venture Capital Association (BVCA) has argued that it does not consider mandatory notification “either necessary or proportionate.”

Overall, the BVCA said in January that it supports in principle measures to protect national security interests.

However, it added, “any such measures must strike a balance between protection of genuine areas of critical national security interest and unnecessary interference with foreign investment in U.K. infrastructure and businesses.”


Kevin McCandless
Kevin McCandless
CNS London Correspondent

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