Within a short time of the appointment of Theresa May as UK Prime Minister, Mrs. May’s vision for corporate Britain is already becoming clear, and we expect a more interventionist approach to takeovers of strategically important UK businesses by foreign acquirors.
May has called for a “proper industrial strategy” capable of stepping in when British companies receive takeover bids from foreign predators. The rhetoric suggests a potential departure from prior administrations, and the government has said that it is currently reviewing foreign takeovers on a “case by case” basis.
The newly-redesigned Department for Business, Energy and Industrial Strategy (BEIS) already has momentum, taking public positions on potentially strategically sensitive mergers, for example, by giving its public seal of approval to the acquisition by Japan’s Softbank of FTSE 100 technology company Arm. The Japanese buyer took the unusual step of publicly pledging to maintain British jobs and technology after holding talks with the Prime Minister. Further, on 15 September 2016 the UK government announced, along with the approval of the new Hinkley Point C project, a review of the public interest regime in the Enterprise Act 2002 and the introduction of a cross-cutting national security requirement for continuing government approval of the ownership and control of critical infrastructure.
The soft consultation seen recently is unlikely to be required for the majority of transactions and will likely make way for a more robust, and hopefully clear and simplified, framework in the coming months. Exactly what that framework might look like is to be confirmed. Determining which businesses are strategically important to the UK and which takeovers might, in a globalized market, require closer scrutiny will be challenging. A lengthy period of consultation by BEIS is expected before any changes in the takeovers regime are introduced or any new “industrial strategy” clearance requirements are announced.
There is an existing regime for government intervention on UK takeovers. Under the 2002 Enterprise Act, politicians have the power to regulate and potentially block acquisitions through a public interest test in key strategic sectors, such as media and defence or to preserve the stability of the financial system. The current public interest regime could be expanded to a degree. Yet the expected new set of rules could be much wider in scope, perhaps resembling clearance based regimes in the United States or Australia. In our view, recent government comments suggest that a regime closer to the US CFIUS or Australian Foreign Investment Review Board regimes is being considered by the UK government. Such a regime would give government more flexibility.
Deal making in Britain has typically been free from political interference. There are clear signs the new government will monitor deals more closely, but whether proactively or through some form of notification regime, and covering which companies and/or sectors, remains unclear. Whilst the threat of a new regime looms over strategically important UK M&A, it is likely that acquirors will be advised to take pre-emptive measures, such discussions with BEIS, to seek to reduce the level of government scrutiny after transaction announcement.