Why the UK’s overhaul of takeover rules is bigger than you think
The biggest misconception about the UK’s new national security regime governing takeovers is that it is simply a system for vetting foreign buyers of British companies. It’s far broader than that. And the reams of recently published government guidance ahead of the National Security and Investment Act coming into force in January have only served to emphasise just how big the changes are for companies, dealmakers and investors — and how hard it is to gauge how these new powers will be used.The law has been described as the UK’s version of Cfius, the Committee on Foreign Investment in the United States. But it is, in essence, quite different. The clue is in the names: while Cfius focuses on foreign investment, the UK regime concerns national security.So the rules — such as the need to make a mandatory notification to the government if buying UK companies or shareholdings in 17 sensitive sectors — apply to UK and foreign buyers. The system could even capture internal company restructurings, according to lawyers.The government has already narrowed the definitions of the 17 highest-risk sectors but they remain pretty fuzzy. The regime also covers assets, through an option to call in transactions not subject to compulsory reporting. And its reach extends far beyond UK borders. Companies and assets don’t have to be UK-based to be subject to review: the test is whether they are involved in activities in the UK, or in the supply of goods and services in the UK. It is entirely possible, then, that a deal between two foreign companies could fall within the scope of the rules. There is no size threshold below which deals are exempt. And failing to follow the process and seek approval where needed can mean a deal is “void” and penalties of up to £10m, or 5 per cent of annual sales.Nicole Kar at Linklaters says the bottom line is: “It is hard for a company and its advisers to say ‘this is what the government is interested in’. There isn’t an underpinning test or definition of national security and the statement of policy on call-in remains broad enough to cover a wide range of concerns.”True, the UK’s laissez-faire approach to takeovers needed an update, not least because technology has changed the tenor of potential threats and the global mood has swung against the “open for business” attitude of old. Four of the 15 deals the government has investigated on security grounds under the rules in place since 2002 have come this year, showing a more muscular approach is already the reality.Dire warnings of a “chilling” effect on inward investment are generally overused. But the intentional vagueness adds to uncertainty, in a regime that the government estimates could mean 1,000-1,800 notifications a year and perhaps 10 interventions in deals. Nor will there be much more to glean after the new rules come into force: the government has said it won’t make public the deals it calls in for further assessment (though listed companies may have to) and it won’t publish any interim orders, as the Competition and Markets Authority does currently.The result is an expansive, ill-defined regime that lacks transparency — which is perhaps the point. The government has removed explicit mention of economic factors from its latest statement on how the powers are likely to be used. But that rather concedes the point, in a document that must be updated by the business secretary regularly, that a different person in a different time could take another view entirely on how employment, jobs and skills play into national security. “The NSI Act is not a system for screening all acquisitions in the economy,” reads the policy statement. Perhaps not. But it looks rather like an option on that — for this, or any future, [email protected]@helentbiz More
