COVID-19: UK Gov Tables Enhanced Foreign Takeover Restrictions

By Thomas Rainey

23.06.2020

On 22 June 2020, the UK government proposed legislation to amend the Enterprise Act 2002 which would have the effect of expanding the circumstances in which the government would have the authority to review and/or block takeovers of UK companies by foreign entities.

Under the Enterprise Act 2002, the UK government is already empowered to intervene in takeover situations which they deem to be contrary to the public interest – such as relating to the fields of national and public security, media diversity and standards, and/or financial services’ stability.

The amendments now laid before parliament, will add to the above a fourth category of businesses key to the combating of public health emergencies, such as Coronavirus.

Protecting Vulnerable ‘Critical Healthcare Capabilities’

The UK government’s thinking is that, as a result of the economic disruption caused by the current pandemic,  in the short-to-medium term some UK businesses may be particularly vulnerable to hostile approaches or distressed acquisitions. Where the government believes any business so targeted has one or more ‘critical capabilities’ which are or may be utilised in the UK’s pandemic response, the takeover or merger may be scrutinisied and, if deemed necessary, blocked. Examples of critical capabilities given by the government guidance include ‘vaccine research’ and ‘personal protection equipment manufacture’.

Secretary of State for Business, Alok Sharma commented:

“To better protect the country’s resilience to COVID-19 we are taking steps now to mitigate against public health emergencies”

National And Public Security – Expanded

In addition, the proposed amendments would expand the government’s powers to intervene in mergers and takeovers in the 3 sectors of the economy deemed central to national security – artificial intelligence, cryptographic authentication technology and advanced materials – by lowering the bar that must be cleared for such intervention to be considered reasonable and proportionate.

Summary – Protectionism; But Not To ‘EU Levels’

It is worth noting that since the Enterprise Act 2002 came into effect, the UK government has intervened  in mergers/takeovers on public interest grounds on 20 occasions; 12 on national security grounds, 7 on media plurality and once on financial stability. However, no transaction has ever actually been blocked on public interest grounds.

The government is keen to stress that while it believes these enhanced powers are important, the UK has a long track record of resisting state intervention in free markets. These newly tabled amendments can be contrasted with similar policies enacted recently by other European states, with the UK government keen to show it is taking a less protectionist approach than its continental neighbours. The guidance released by the UK’s Department of Business, Energy & Industrial Strategy states:

“These measures will strike the right balance between the UK’s national security and resilience while maintaining our world-leading position as an attractive place to invest – the UK is open for investment, but not for exploitation”

For More Information

For more information about any of the matters discussed in this point, please contact Thomas Rainey or another member of the Duane Morris London Team.