- A new ‘National Security and Investment Bill’ will require foreign investors to report potential takeovers and asset purchases across 17 UK industries deemed to be of national importance.
- Focusing on national security, the legislation will beef up the government’s intervention powers.
The government has unveiled a new ‘National Security and Investment Bill’ that is designed to prevent foreign buyers from hoovering up sensitive UK assets. If passed into law, this would represent the biggest shake-up in takeover rules in almost 20 years.
Under the present system, the 2002 Enterprise Act enables ministers to step in on a deal if it has repercussions for national security, media plurality, financial stability or public health emergencies. But the threshold for intervention is only when the target’s annual revenue is at least £70m or where the merger would create an entity with a market share of more than 25 per cent.
The new regime would cover 17 industries deemed to be of national importance – including defence, energy and artificial intelligence – making it compulsory for foreign investors to report potential transactions to a new ‘Investment Security Unit’ in the department for Business, Energy and Industrial Strategy (BEIS). This would apply to business deals of all sizes and extend beyond just takeovers to purchases of assets and intellectual property as well. The government would have 30 days to decide whether to launch an investigation and a review could take 19 weeks. It would also have the authority to retroactively halt acquisitions up to five years after they have concluded. If a deal in a sensitive industry is not reported, foreign entities could be fined up to £10m or 5 per cent of their global annual revenue – whichever is greater.
The powers came into effect as soon as the bill was published in order to prevent a wave of takeovers being rushed through. Officials expect that more than 1,000 transactions will be flagged each year, with up to 95 deals requiring a full assessment and 10 cases requiring “remedies” – that compares with just 12 government interventions on national security grounds since 2002.
The bill is not directed at any foreign actor in particular, but the more interventionist approach comes amid growing alarm over Chinese ownership of key UK assets. The Covid-19 pandemic has further heightened fears that foreign predators could swoop in on weakened companies involved in cutting-edge technology or critical infrastructure.
But there are concerns that this shift might be too aggressive. The prospect of extended deal timelines and politicised delays could deter foreign investment in the UK, which would contrast the image painted of a ‘Global Britain’ in the post-Brexit era. Meanwhile, distressed companies could find it more difficult to secure a quick capital injection.
Business secretary Alok Sharma says that the government is keen to maintain an attractive investment environment, but “hostile actors should be in no doubt there is no back door into the UK”. The legislation would bring the UK in line with other countries that have taken a similarly protectionist stance. This year, France, Germany and Australia have all tightened their regulations covering foreign ownership in strategically important companies.
There are some who would argue that the UK’s new stance comes as too little, too late. The more laissez-faire policy of previous governments already oversaw what some might call the ‘Great British sell-off’ – this includes the likes of Arm and Cobham. With the prospect of Arm being transferred to another set of foreign hands – this time US chipmaker Nvidia (US:NVDA) in a proposed $40bn (£30bn) tie-up – it remains to be seen how the UK government will react a second time around.
