The UK expands foreign investment controls

United KingdomScotland

On 23 June 2020, the UK Government introduced a new public interest ground on which it can intervene in mergers: to maintain UK capability to combat and mitigate public health emergencies. The UK joins the EU and other countries around the world concerned that the global COVID-19 pandemic and its economic implications put businesses critical to the fight against Coronavirus at risk of opportunistic acquisitions by foreign buyers. The changes were introduced very quickly following an announcement on 21 June 2020.

The Government also plans to expand the areas of the UK economy subject to lower thresholds for a public interest intervention under UK merger control rules, to include artificial intelligence, advanced materials and cryptographic authentication technology.

The UK Government sees these measures as short-term risk mitigation pending the introduction of wider, far-reaching reforms to UK foreign investment controls, expected later this year.

The new public interest ground: to combat public health emergencies

On 23 June 2020, a new public interest ground was added to the Enterprise Act 2002, allowing the UK government to scrutinise mergers to ensure they do not threaten the UK’s ability to combat a public health emergency such as COVID-19. This adds to the existing public interest grounds of national security, media plurality and financial stability under the Act.

In announcing the changes, the UK Government referred to the risks of businesses with critical capabilities being at risk of foreign takeovers, including ‘outwardly hostile approaches’ or ‘financially distressed companies being sold to malicious parties’.

"These new powers will enable the government to intervene if a business that is directly involved in a pandemic response, for example, a vaccine research company or personal protective equipment manufacturer – finds itself the target of a takeover.”

New areas subject to lower national security thresholds

The Government also laid out plans to add sectors to those currently subject to lower thresholds under UK merger control, namely developing, producing or research into:

  • artificial intelligence;
  • cryptographic authentication technology; and
  • advanced materials.

This follows the introduction in June 2018 of lower thresholds for mergers involving companies active in quantum technology, computing hardware, or military dual-use technologies. If a target is active in any of these areas, the thresholds for UK merger control are lowered:

  • to £1m of target turnover in the UK from £70m ordinarily;
  • to a share of supply in the UK of 25% or more, which can be met by the target alone, as opposed to requiring an overlap and increment under ordinarily rules.

If either of these thresholds is met, the UK Government can intervene in a merger on national security grounds (and the UK CMA can take jurisdiction to review and report to the Government on any competition issues). The proposed changes expand the types of business subject to these lower thresholds.

The UK Government has stated it sees these measures as a way of mitigating risks pending the implementation of broader reforms and the formal creation of a foreign investment notification and approval regime in the UK. The Government has recently confirmed its intentions to bring forward the proposals at the earliest opportunity ‘when Parliamentary time allows’.