UK plans U-turn on powers to halt company takeovers on national security grounds | Mergers and acquisitions

The UK government is looking to roll back powers to intervene in company takeovers less than two years after they were introduced, in an attempt to be “more business friendly”.

The deputy prime minister, Oliver Dowden, said the government would review measures “narrowing and refining” the National Security and Investment Act, which only entered into force in January 2022, and allowed much greater scrutiny of foreign investments in British companies.

A reversal of the changes would represent the latest change of tack by a government that has wavered between wanting to be open to business and a desire to block takeovers of businesses in strategically important sectors.

The government launched a nine-week consultation on Monday to invite the views of companies and other interested parties. Dowden wrote that he wanted the regime to be “proportionate and well-targeted, minimising the burdens it places on companies and investors”.

He said he wanted to ensure “government regulation keeps up with the dynamism of the private sector” and that the state applies “as little regulatory burden as necessary”, in an interview with the Financial Times.

“We can’t have yesterday’s regulation for tomorrow’s world,” he said.

The rules cover 17 important sectors that could have national security implications, ranging from military technology and cryptography to energy, computing, quantum technology and even some transport. The government has intervened to block the takeover of Newport Wafer Fab, a semiconductor manufacturer, by a Chinese-owned company, and the purchase of the electronic design company Pulsic by a Hong Kong rival. The merger of the UK telecoms businesses of Vodafone and Hong Kong-owned CK Hutchison will also be scrutinised.

Veronica Roberts, the head of the law firm Herbert Smith Freehills’ global foreign direct investment group, said a review would be “very welcome news for investors”, citing more than 800 required filings that have resulted in only a “handful of cases” being prohibited.

“It’s a drawn-out process,” she said. “If they are caught by the mandatory filing regime, investors have to complete a filing and usually wait until the end of a 30-working-day period for their deal to be cleared, in cases where often the investor cannot see that there could be a national security concern in their deal.”

Dowden mooted changes to reduce the number of firms that must notify authorities of an intention to merge. One way to do that would be to remove internal company restructuring from the scope of the act, if the ultimate beneficial owner remained the same.

Another important change would be on lowering the threshold for artificial intelligence companies, which are all covered by the act, Dowden said. The AI sector is growing rapidly around the world, and Rishi Sunak’s government is hoping to take a lead in global regulation.

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He said the government should focus on “high-end” AI that may have military uses, or that could be used to “enhance an adversary’s capabilities or diminish ours”.

“AI is becoming ubiquitous across the entire economy. An awful lot of that is going to have very little national security implications,” he said.

Roberts said she would welcome narrower notification requirements for energy and technology companies in particular, as well as changes to exempt “most corporate reorganisations” from the requirement. The need to notify during restructuring has “added delay and complexity to corporate planning”, she said.

Dowden said he expected the government’s role in reviewing takeovers to be “net smaller” after the review. He said: “I always want to adhere to this principle of a small yard or garden and a high fence. So if I can get things outside the scope of the legislation, I will do.”


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