Ministers have greater powers to block foreign takeovers of British firms after new rules came into effect on Tuesday giving them more scope to unpick deals that have the potential to harm national security.
The National Security and Investment Act, which enhances existing powers, is described by the government as the “biggest shake-up of the UK’s national security regime for 20 years”.
Ministers have already been able to intervene in deals where a foreign-led takeover could affect economic stability, media plurality, the UK’s pandemic response, or national security. However, the act builds on the government’s ability to deploy the national security rationale for “calling in” a takeover.
It identifies 17 areas of the economy that warrant greater scrutiny when overseas investors seek to make an acquisition. In addition to defence and military technology, ministers will be able to examine deals in a wide range of sectors such as advanced robotics, artificial intelligence, the civil nuclear sector, transport and quantum technology.
Officials will be notified that a deal is worthy of examination when a buyer takes its stake above three trigger points: 25%, 50% and 75%. The government can block these transactions and even unwind them restrospectively if they were completed on or after 12 November 2020, the day the bill was introduced to parliament.
The business secretary, Kwasi Kwarteng, said: “The UK is world-renowned as an attractive place to invest but we have always been clear that we will not hesitate to step in where necessary to protect our national security.
“The new investment screening process in place from today is simple and quick, giving investors and firms the certainty they need to do business, and giving everyone in the UK the peace of mind that their security remains our number one priority.”
The act is viewed by some as a response to concern about Chinese takeovers of strategically important technology businesses, with some of the deals already being pored over by officials under existing rules.
They include relatively small deals, such as the sale of the semiconductor manufacturer Newport Wafer Fab to a Dutch company owned by China’s Wingtech, which is partially backed by the state. Newport Wafer Fab has multiple contracts with the UK government, including defence-related projects. The government funding body UK Research and Innovation has suspended grants to the company, while a consortium of British investors is reportedly ready to submit a £300m bid if the deal is blocked.
Much larger foreign buyouts by US companies also came under the microscope in 2021, owing to concerns about national security or intellectual property.
Takeovers of the defence suppliers Ultra Electronics and Meggitt attracted government scrutiny, as did the $75bn (£56bn) takeover of the world-leading chipmaker Arm by its rival Nvidia – a deal that is the subject of competition investigations in the UK, US and Europe.
Plans to expand the government’s remit to examine such deals have divided opinion. It will apply regardless of the size of a company by revenue, or where the prospective acquirer is based, even if it is in the UK.
Business groups have warned that the breadth of criteria could result in unnecessary meddling in a large volume of deals, deterring investment in the UK and bogging down officials in needless paperwork. The government has said that while up to 1,800 deals a year would be notifiable under the new powers, fewer than 100 would be called in for a full review.
Reviews are intended to last a maximum of 30 days, faster than is typical at the moment, thanks to a new investment screening unit.
Kwarteng has also faced criticism, including from the Henry Jackson Society thinktank, for reducing the equity threshold at which deals can be examined from 25% to 15%.
The Department for Business, Energy and Industrial Strategy has insisted that the act will not lead to ministers “arbitrarily” intervening in takeovers.
“The vast majority of acquisitions will require no intervention and will be able to proceed quickly and with certainty in the knowledge that the government will not revisit a transaction once cleared unless false or misleading information was provided,” the department said on Tuesday.BUSINESS NEWS • ECONOMIC NEWS • MAKE MONEY • News