Takeovers facing increasing scrutiny on national security grounds
26th May 2022
With more and more transactions involving strategic UK assets facing government reviews on national security grounds, Jay Turner, Associate Partner at H/Advisors Maitland, explains what this means for investors and businesses.
“We welcome overseas investment, but it must not threaten Britain’s national security” said Kwasi Kwarteng this week as he announced a full national security assessment of the acquisition of the UK’s biggest microchip factory, Newport Wafer Fab, by a Chinese-owned technology company. The Business Secretary’s remarks illustrate the delicate tightrope the UK Government is walking when it comes to this country’s takeover screening regime. His comments also serve as a reminder to companies and investors that the UK’s new National Security and Investment Act is now up and running and that the government is already making use of its new powers to scrutinise and potentially intervene in qualifying acquisitions on national security grounds.
In the same week that it confirmed it would review the Newport Wafer Fab acquisition, the government announced it would examine the national security implications of French telecoms group Altice’s 18 per cent holding in BT. It is likely that other takeovers have been called-in since the new legislation came into force January, but without any publicity.
The government originally proposed the new powers amid growing concerns about hostile foreign powers (particularly China) gaining access to UK technology. Russia’s invasion of Ukraine and the subsequent sanctions against the UK assets of Russian oligarchs has only served to heighten interest and concern in ownership of UK companies in sensitive sectors. Meanwhile parliamentarians have continued to press the government to fully assess takeovers of this kind of strategic UK asset. In this context it is not surprising to see the Business Secretary already screening several deals in the less than half a year since the legislation came into force.
Whilst ministers are aware of the risk of deterring investment when screening takeovers on national security grounds, this administration has already shown itself to be more interventionist than its predecessors. Investors and companies should be alert to the fact that, subject to certain criteria, they may be legally required to tell the government about certain sensitive acquisitions under the new regime. The scope of the legislation is wide, with 17 defined sensitive areas of the UK economy covered – including broad terms such as ‘Communications’, ‘Energy’, and ‘Transport.’
Decisions on acquisitions will naturally be political. The process is administered by officials in a new Investment Security Unit in the Business Department (BEIS) and the decision maker is the Business Secretary. With the likelihood of reviews on national security grounds increasing, and with such wide scope for notification or intervention, business should consider the political context in which their transaction is taking place, as well as ensuring they are legally compliant with the provisions of the new legislation.