When can the Secretary of State intervene in a merger or acquisition?
This post sets out the circumstances in which the Secretary of State has been able to intervene in a merger or acquisition to date and looks at the ongoing consultation to protect national interests.
Following an enquiry from a Japan contact on whether a particular sector of the UK is likely to be considered protected under national interests and a discussion with anti-trust colleagues, the timing is apt for an update on the current position and on-going consultation.
The only circumstances in which the Secretary of State (SoS) has been able to intervene in a merger or acquisition to date are:
1. if one of the jurisdictional merger control tests are satisfied (i.e. the UK turnover of the target exceeds £70 million or the share of supply by the parties is at least 25% (and involves an increment) or the European Commission had jurisdiction under the EU Merger Regulation) and one of the "exceptional public interest" grounds applies, i.e. national security, plurality of the media/press freedom or the stability of the UK financial system; or
2. if the thresholds are not met and the special public interest regime applies, i.e. the transaction involves either government contractors who hold or receive confidential defence-related information or certain newspaper/broadcasting businesses.
The UK has recently introduced new rules, which amend the jurisdictional tests (but do not expand the public interest grounds set out above) with effect from 11 June 2018, in relation to the following sectors:
1. the development or production (or holding information capable of use for this purpose) of items for military or dual military and civilian use (with reference to various export control lists);
2. the design and maintenance of computing hardware; and
3. the development and production of quantum technology.
The alternative jurisdictional tests are amended as follows:
1. the financial threshold for the UK turner of the target is reduced to £1 million; and
2. the share of supply test can be satisfied if the target alone has a 25% share.
Looking further ahead the UK Government is currently consulting on further possible reforms to protect national interests, whilst "retaining the open approach to trade and investment".
These include the possibility of the SoS being able to intervene in relation to a broader range of transactions on national security grounds, including in relation to new projects and sales of bare assets which are not currently covered by the UK merger regime, as well as the possibility of mandatory notification in relation to foreign investment in certain sectors, such as the civil nuclear and defence sectors. Apparently, if the Government were to go down the mandatory notification route for certain changes in control/ownership, it is minded to include "the ownership and operation of statutory harbour authorities which account for more than 5% of UK traffic" within the regime.
Link to the National Security and Infrastructure Investment Review Document published in October 2017
Link to BIS Draft Guidance in March 2018 on the Changes to the Turnover and Share of Supply Tests for Mergers