On March 15, 2018 the Department for Business Energy and Industrial Strategy (BEIS) announced that it would be introducing to Parliament updated rules to strengthen the Government’s powers to scrutinise takeovers that may raise national security concerns in specific areas of the economy.
This follows publication of the National Security and Infrastructure Review Green Paper in October 2017 which outlined the Government’s plans to take a staged approach, through short and long-term measures, to reform how it scrutinises the national security implications of business transactions. BEIS has now published the Government’s response to its consultation on the short-term proposals, together with draft guidance on the changes to be made to the turnover and share of supply tests for mergers under the Enterprise Act 2002 and a draft statutory instrument, The Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2018.
Currently under the Enterprise Act 2002, the Government can intervene in mergers (foreign or domestic) that give rise to specific public interest concerns of national security, financial stability or media plurality. However, intervention can only take place if the transaction meets certain thresholds. These are that the target company has a UK turnover of over £70 million, or that the merger takes the merging parties’ combined share of supply to 25 per cent or more (or increases an existing share of supply of 25 per cent or more). There are limited exceptions to this related to some defence and media transactions.
Following the October 2017 consultation, the Government has decided to lower the UK turnover threshold from £70 million to £1 million and remove the current requirement for the merger to increase the share of supply to or over 25 per cent in relation to mergers in the areas of military and dual-use goods, multi-purpose computing hardware and quantum-based technology (the “specified activities”).
The Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2018 amends the share of supply test so that it is additionally met where a merger or takeover concerns a target involved in any of the specified activities with a 25 per cent or more share of supply of goods or services in the UK before the merger or takeover, as well as where the deal leads to an increase of supply to, or above, this threshold. Subject to Parliamentary approval being obtained for this statutory instrument, a second statutory instrument will be laid to amend the turnover test to allow the scrutiny of more mergers of businesses engaged in any of the specified activities. It is intended that both Instruments will come into force at the same time.
The Government has published draft guidance explaining why the Government is amending the Enterprise Act 2002. The guidance describes the legal and practical effect of the amendments and offers advice to businesses and others about what they should do (and not do) as a result of these changes. It also considers the process for any Government interventions in mergers. At the same time, the Competition and Markets Authority (CMA) has published draft guidance on its approach to the changes to the jurisdictional thresholds for UK merger control. The CMA has requested comments on its draft guidance by April 12, 2018.
The Government will continue to access risks in other sectors, including emerging technologies, and states that if there is evidence to suggest that it should take action in additional areas of the economy, then it will bring forward further legislation. It also intends to bring forward long-term reforms as set out in its October 2017 Green Paper. It is currently considering responses received to that and will lay out its plans for long-term reform in due course.
(BEIS, National security & infrastructure investment review, 15.03.18)