Summary: On 21 October 2016, the UK Competition and Markets Authority (CMA) published its submission to the Business, Energy & Industrial Strategy (BEIS) Committee inquiry into the UK Government’s industrial strategy. The CMA highlighted concerns that the Government’s proposals to widen the public interest provisions in the current merger control regime may deprioritise competition assessment of mergers and potentially increase business uncertainty.
Government’s Industrial Strategy
The BEIS committee is reviewing the Government’s proposed industrial strategy and questioning how interventionist the Government should be in the free market.
The committee’s review follows statements from Prime Minister Theresa May that the Government would intervene in cross-border takeovers to protect UK national interest. Prior to becoming Prime Minister, Theresa May called for a “proper industrial strategy to get the whole economy firing”. She cited the attempted takeover of AstraZeneca (“one of the jewels in [Britain’s] crown”) by US pharmaceuticals giant Pfizer.
While the UK’s industrial strategy would not “automatically stop the sale of British firms to foreign ones” according to the Prime Minister, it should be capable of “stepping in” to defend sectors that are important to the economy.
In a similar vein, following its decision on 15 September 2016 to proceed with the construction of a new nuclear power station at Hinkley Point C in England, the UK Government announced it would “impose a new legal framework for future foreign investment in Britain’s critical infrastructure” (see our article “Hinkley, golden shares and protectionist time travel”).
The tone emanating from Downing Street is unusual and, in the current climate, considered by many investors to be unsettling.
CMA Response to the BIS Inquiry
The CMA has warned against broadening existing powers allowing governmental intervention in UK transactions on public interest grounds. The CMA highlights the risk of defining the public interest consideration so widely that it ultimately operates as a “catch-all” exemption. “Piecemeal” reforms to the merger regime could result in a “fragmented system” and create legal uncertainty for businesses. According to the CMA, therefore, any public interest consideration should be defined in a way that “ensures it can, so far as possible, be objectively assessed, and is not of unintended or uncertain breadth”.
Highlighting the benefits of a competition-based assessment of mergers, the CMA also expressed concerns that allowing ministers to intervene in mergers on “non-competition grounds” might:
- undermine the importance of competitive businesses to the UK economic well-being;
- harm the UK’s international reputation as an open, competitive place to do business, and therefore its ability to attract overseas investment through mergers and acquisitions; and
- encourage a general belief that merger decisions could be influenced by politics or lobbying.
The CMA emphasised the various avenues already available to the Government in order to intervene in merger transactions on public interest grounds. As we set out in our previous article, the Government already has significant powers under the Enterprise Act 2002 to intervene in transactions which raise national security and other public interest concerns, as well as on deals which fall below the relevant filing thresholds in order to protect security sensitive information in the hands of parties to the transaction.
The political debate surrounding the degree of UK Government intervention in cross-border mergers pre-dates the adoption of the current merger control regime. Brexit has reignited the issue.
Currently, the UK Government’s ability to intervene in cross-border mergers to protect domestic interests is limited by the EU merger control regime (EUMR). Post-Brexit, however, if the UK is no longer part of the single market the Government may be able to extend the public interest test. Certain foreign acquisitions could be limited or even prohibited in an attempt to protect national businesses. In practical terms, this could allow the UK to veto EU mergers also subject to the UK’s merger control regime.
The UK Government will need to exercise caution. At a time when businesses are seeking certainty, reform could result in a less predictable merger regime and, as the CMA points out, discourage foreign companies from investing in the UK.