Review procedurei Thresholds for notification and review of foreign investment transactionsEUMR notification thresholds
For a transaction to be reviewable under the EUMR, it must consist of a 'concentration' (i.e., the merger of two or more independent undertakings or parts of undertakings, the acquisition of direct or indirect control of the whole or parts of another undertaking or the formation of a 'full function' joint venture) that has an 'EU dimension'.
Concentrations will have an EU dimension when (1) the combined aggregate worldwide turnover of all the parties to the transaction exceeds €5 billion and the EU-wide aggregate turnover of each of at least two parties exceeds €250 million, or (2) the combined aggregate worldwide turnover of the parties exceeds €2.5 billion, the aggregate EU-wide turnover of each of at least two of the parties exceeds €100 million, in each of at least three Member States the combined aggregate turnover of all the parties exceeds €100 million, and in each of the same three Member States the aggregate turnover of each of at least two of the parties concerned exceeds €25 million. Unless, in each case, each of the parties involved achieves more than two-thirds of its EU-wide turnover in one and the same EU Member State.
When the thresholds are met, a merger filing is mandatory. In certain circumstances, a transaction that meets the EUMR thresholds may be referred entirely or partially to a Member State for review by the national authority.UK merger notification thresholds
For a transaction to be reviewable under the UK merger control regime, the transaction must constitute a 'relevant merger situation'. The regime covers mergers, acquisitions of minority shareholdings, asset purchases and joint ventures.
A relevant merger situation will generally be created if two or more enterprises cease to be distinct by virtue of being brought under common ownership or control (or if the CMA believes there is an arrangement in progress or contemplation that will lead to this) where either (1) the UK turnover associated with the enterprise being acquired exceeds £70 million or (2) the transaction creates or enhances a 25 per cent share of supply or purchases of any goods or services in the United Kingdom, or in a substantial part of it (the 'share of supply test'). The term 'enterprise' is defined as the activities or part of the activities of a business (it need not, therefore, be a separate legal entity). 'Control' is not limited to the acquisition of outright voting control but includes situations of material influence falling short of outright voting control. Intervention is thus possible with respect to acquisitions of minority shareholdings (material influence will be presumed at 25 per cent and can arise at lower levels still, such as 10 or 15 per cent).
For certain 'relevant enterprises', the thresholds were lowered as of June 2018. A relevant enterprise is one that is involved in specified activities connected with (1) military or dual-use goods subject to export control, (2) computer processing units or (3) quantum technology. The test for review in these cases requires (1) the enterprise being acquired to have turnover in the United Kingdom of over £1 million, (2) the meeting of the share of supply test or (3) the relevant enterprise being acquired to have a share of supply or purchase of goods or services in the United Kingdom of 25 per cent or more, made in connection with activities by virtue of which it is considered a relevant enterprise (there is no need for an increase in share in such circumstances). Whereas the changes in these thresholds open a wider range of transaction to potential competition review by the CMA, the key driver of the reforms was to reduce the thresholds for government intervention under the public interest regime for transactions raising national security concerns (which, as described below, are based on the same tests). The CMA has indicated in guidance that it would not expect to open competition investigations into deals that fall within its jurisdiction only because of the new thresholds. In line with its usual policy, the CMA will only investigate a transaction on its own initiative if there is reasonable chance that the transaction may give rise to both a relevant merger situation and a realistic prospect of a substantial lessening of competition.ii Thresholds for intervention in public interest, special public interest and EU legitimate interest cases
For public interest cases, the Secretary of State must have reasonable grounds for suspecting that it is or may be the case that a 'relevant merger situation' has been or will be created (i.e., the relevant UK merger control thresholds are met) and must believe that it is or may be the case that one or more public interest considerations are relevant to the consideration of the transaction.
For special public interest cases (i.e., those not reviewable under either the UK or EU merger control regimes), the Secretary of State must have reasonable grounds for suspecting that a 'special merger situation' has been or will be created (as defined below) and that it is or may be the case that one or more public interest considerations are relevant to the consideration of the transaction.
A special merger situation may arise if, immediately before the enterprises ceased to be distinct:
- at least one of the enterprises concerned was carried on in the United Kingdom, or by or under the control of a body corporate incorporated in the United Kingdom, and where a person who was carrying on one or more of the enterprises concerned is a relevant government contractor; or
- in relation to the supply of newspapers or broadcasting of any description, at least 25 per cent of all the newspapers or broadcasting of that description in the United Kingdom, or a substantial part of it, were supplied by the person or persons by whom one of the enterprises concerned was carried on.
For European intervention notices, the Secretary of State must have reasonable grounds for suspecting that it is or may be the case that a 'relevant merger situation' has been or will be created (i.e., the relevant UK merger control thresholds are met), that the EU merger control thresholds are met, must be considering whether to take appropriate measures to protect legitimate interests as permitted by Article 21(4) of the EUMR, and believe that it is or may be the case that a public interest consideration is relevant to the consideration of the transaction.iii Procedure and timeline to obtain public interest clearance for transactions and other investments
In respect of each of the categories of public interest mergers under the Enterprise Act, the regime consists of the following stages:
- The Secretary of State, having been notified by the CMA of a Phase I merger case that the CMA believes raises public interest considerations or, at its own instance, issues an intervention notice to the CMA requesting that it prepare a report in relation to the specified public interest considerations (perhaps following interactions with the parties or third parties regarding the fact that they are minded to intervene).
- The CMA issues an invitation requesting third-party comments on the public interest considerations (and competition issues if relevant) and consults other government departments, sectoral regulators, industry associations and consumer bodies regarding the public interest considerations.
- The CMA conducts its review and prepares its report for the Secretary of State (usually within 40 business days, but depending on the date stipulated in the intervention notice) considering jurisdictional issues and summarising any representations received in relation to public interest issues (and in the case of public interest cases, explaining whether the transaction raises competition concerns).
- In addition to the CMA's report, advice on public interest issues will also normally be provided to the Secretary of State (directly or indirectly via the CMA) by the relevant government department or public body (e.g., Ofcom in the case of newspaper and media mergers, the MOD for defence mergers, Ofgem for energy sector mergers, and the Financial Conduct Authority and Bank of England for mergers concerning the stability of the UK financial system). In the case of Ofcom, the regulator will conduct its own public consultation as part of its review.
- The Secretary of State must then decide as soon as reasonably practicable whether to refer the transaction for a Phase II investigation on public interest grounds (and perhaps also on competition grounds in the case of public interest cases), to accept undertakings from the parties in lieu of a reference to a Phase II investigation or not to make a reference (including referring the case to the CMA where public interest concerns are no longer considered relevant but the CMA has identified that competition concerns are relevant). The threshold for referral is low and the relevant Secretary of State has a wide margin for exercising his or her discretion (i.e., he or she has the power to make a referral if he or she believes there is a risk that is not 'purely fanciful' that the merger 'might be expected to operate' against the public interest (see the statements of the Secretary of State in Fox/Sky (2017)). Parties can offer undertakings in lieu of reference to a Phase II investigation. Typically, the Secretary of State will make a decision on whether he or she is minded to accept such undertakings in short order following receipt of the CMA's Phase I report. However, before formally accepting any such undertakings, the Secretary of State must give public notice of the proposed undertakings and consider any representations made in response. The notice shall specify a period of not less than 15 days in which representations can be made. However, the Secretary of State may dispense with any of these procedural requirements if he or she considers that there are special reasons for doing so, for which the Secretary of State has wide discretion.
- When the Secretary of State refers the case for a Phase II investigation, the CMA is required to conduct an in-depth inquiry into the public interest considerations (and any competition concerns in public interest cases, if referred also on this basis) and to prepare a detailed report for the Secretary of State. The CMA has 24 weeks to prepare the report – this period may be extended by eight weeks where 'special reasons' exist for doing so. The report will include the CMA's conclusion as to whether the merger operates or is expected to operate against the public interest and its recommendations for remedies.
- Upon receipt of the CMA's recommendations, the Secretary of State must decide whether to make an adverse public interest finding (or whether to take no decision at all in public interest cases). The Secretary of State must publish the decision within 30 days of receipt of the CMA's report. The Secretary of State must accept the CMA's conclusions as to whether the transaction will result in a substantial lessening of competition in public interest cases and the CMA's jurisdictional assessment; the Secretary of State will have 'regard to' but is not bound by the CMA's recommendations for remedies or the wider public interest issues. If no action is taken by the Secretary of State in public interest cases, the CMA will proceed to deal with any remaining competition issues.
The CMA has the power to take by interim order any action it considers necessary to prevent or unwind pre-emptive action (i.e., integration steps that may prejudice the later imposition of remedies), for example by appointing a monitoring trustee or hold separate manager. These powers can be used both in completed and anticipated deals. For example, with respect to the proposed acquisition by Gardner Aerospace of Northern Aerospace (2018), following the issuing of a public interest intervention notice on 17 June, the CMA issued an initial enforcement order on 19 June preventing any action that might lead to integration of the two businesses, transfer of the ownership or control of the businesses, or otherwise affect the ability of the businesses to compete independently in any market affected by the transaction.
In terms of filing fees, the usual merger fee (ranging from £40,000 to £160,000) will be payable to the CMA in public interest cases. No merger fees are payable in special public interest or European intervention cases.iv Substantive test for clearance of public interest cases
In public interest mergers under the Enterprise Act, the Secretary of State assesses the public interest issues raised by the transaction and adopts a decision based on whether the merger operates or may be expected to operate against the public interest (the public interest test).
The following are recent examples of cases considering the various grounds for intervention. For further details about how particular grounds will be considered or investigated, reference should be made to relevant cases.National security
Until recently, transactions reviewed on this basis have tended to be defence mergers with public security concerns being dealt with through a range of undertakings negotiated or proposed by the MOD, including the maintenance of strategic capabilities within the United Kingdom and the protection of classified information and technology.
By way of example, in May 2009, when AEUK (a subsidiary of Atlas Elektronik GmbH, based in Germany) sought to acquire Qinetiq's Underwater Systems Winfrith division (USW, a key supplier of research, advice, enabling technology, systems and support to the UK's armed forces), the Secretary of State issued a special intervention notice on the grounds of national security concerns. AEUK gave a number of undertakings to avoid a reference to a Phase II review, which the Secretary of State accepted. The security undertakings committed AEUK companies to the maintenance of strategic capabilities. In particular, the AEUK companies undertook that, for as long as any of the AEUK companies remained a supplier to the MOD under military programmes:
- a sufficient number of the directors of such an AEUK company would be UK security-cleared British citizens to enable security-sensitive issues to be resolved at board level should the need arise; and
- the military programmes would continue to be directly controlled by a company or companies incorporated in the United Kingdom.
The AEUK companies also undertook to inform and consult the MOD at least six months prior to the removal of any significant part of the UK military capability to any location outside the United Kingdom, the disposal of any significant part of the UK military capability to any entity not directly or indirectly controlled by the AEUK companies, or the reduction in any significant way of the UK military capability with respect to funded programmes. Undertakings concerning the protection and exploitation of technology and information provided that all matters concerning military programmes and security within the AEUK companies that relate to military programmes would be maintained in line with UK national security regulations. The AEUK companies also undertook to adhere to obligations between the MOD and the AEUK companies regarding confidential information, any commercial exploitation levy and UK export control duties, and principles to prevent conflicts of interest in relation to research conducted by AEUK.
In the case of Melrose/GKN (April 2018), concerns were also raised regarding the intended period of ownership and plans for a defence-related business, based on the fact that the acquirer, Melrose (a British listed company), was a turnaround specialist (which acquires, improves and sells businesses). The Secretary of State did not deem it necessary to intervene on public interest grounds based on undertakings agreed by Melrose with the MOD, and binding undertakings offered by Melrose through the takeover process to allay additional concerns held by the Secretary of State, discussed further below. The undertakings agreed with the MOD included an agreement to seek government consent for plans to divest a business, a component of a business or assets engaged in activities that the MOD considered had national security implications (allowing the MOD to first seek relevant protections from the subsequent purchaser), to ensure the continuation of contractual obligations to protect intellectual property and classified information, and to ensure the continued maintenance of any capabilities with a national security dimension. Further, the MOD was granted powers to inspect information and facilities to ensure the protection of classified information.
Other recent cases have signalled a greater willingness to apply the national security review to broader aspects of public security. For example, the case Hytera Communications Corporation Ltd/Sepura plc (2017) concerned the purchase by a Chinese radio systems manufacturer (Hytera) of a Cambridge-based radio systems provider (Sepura) for £74 million. The Secretary of State issued a public intervention notice on national security grounds on the basis that Sepura supplied communication equipment systems to emergency services across the United Kingdom. Concerns were raised regarding the protection of sensitive information and technology, and for ensuring the maintenance of UK capabilities in maintaining and servicing radio devices used by the UK emergency services. The Secretary of State accepted a series of undertakings, in line with advice received from the Home Office, instead of referring the merger to a Phase II review. The undertakings required the parties to implement enhanced controls for the protection of sensitive information and technology from unauthorised access, as well as granting the relevant agencies, including the Home Office, rights of access to premises and information to audit compliance with the security measures. The two companies also undertook to continue repair and maintenance of relevant radio devices for as long as it is required by the Home Office.Newspaper plurality
Trinity Mirror's proposed purchase of the Express and Star newspapers from Northern & Shell (2018) was reviewed on the basis of the need for (1) free expression of opinion, and (2) sufficient plurality of views in newspapers (as Trinity Mirror also owned the Daily Mirror). The Secretary of State ultimately accepted Ofcom's conclusions that the merger did not raise concerns in relation to either ground, and decided not to refer the merger for a Phase II review. In its report, Ofcom noticeably mentioned that 'newspapers face significant financial challenges as news production and consumption increasingly moves online' and that '[m]easures that support the longer-term viability of newspapers and their websites should be welcome'.Media plurality and broadcasting standards
In the proposed acquisition by 21st Century Fox of Sky plc, the Secretary of State conditionally cleared the transaction following a Phase II review by the CMA. The deal was reviewed on the basis of media plurality and commitment to broadcasting standards grounds. The conclusion by the Secretary of State was that the merger may be expected to operate against the public interest on grounds of media plurality but that the merger may not be expected to operate against the public interest on grounds of the parties' commitment to broadcasting standards. The key concern in this case was that, following the merger, the Murdoch family trust would control both News Corp (which owns News UK, a publisher of newspapers such as The Times, The Sunday Times and The Sun) and Sky News. An undertaking was given to divest Sky News to the Walt Disney Company, or to an alternative suitable buyer. Undertakings were also given by the Walt Disney Company, including not to sell Sky News without Secretary of State approval for 15 years (should it acquire Sky News). Further, the Walt Disney Company undertook (among other things) to maintain a Sky News branded service for 15 years that would abide by the principle of editorial independence and integrity in news reporting and that, for each of these 15 years, total funding available to Sky News would not be less than £100 million. Fox committed (among other things) to pay funding to Sky News for a period of 15 years.
At the time of writing, the Secretary of State is investigating whether a sale of a 30 per cent stake in the Independent and Evening Standard newspapers to a Saudi investor is in the public interest on grounds of the freedom of expression and accurate news reporting. Over the course of the time that the Secretary of State was considering whether to intervene in the transaction, the parties made submissions that, because the Independent is an online-only news outlet, it was not a 'newspaper' within the definition of the Enterprise Act. The Secretary of State opined that the fact the newspaper was not in hard copy did not prevent the relevant jurisdictional tests being met. The CMA delivered its report on jurisdictional and competition matters to the Secretary of State on 1 July 2019 and Ofcom has until late August to report on the media issues.Financial stability
The Lloyds TSB plc/HBOS merger (2008) is the only case reviewed on this basis to date. In its report to the Secretary of State, the Office of Fair Trading (the predecessor of the CMA) found that the merger may result in a substantial lessening of competition and recommended that the merger be referred for a Phase II review. However, the Secretary of State decided to clear the merger without referring it for an in-depth review, concluding that the merger would result in significant benefits to the public interest (as it related to ensuring the stability of the UK financial system) that outweighed the potential anticompetitive outcomes identified.UK merger control
In the UK merger control context, the test is whether the merger has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.v Powers of the competent authorities to interfere with a transaction
The Secretary of State may take any action considered reasonable and practicable to remedy, mitigate or prevent any effects adverse to the public interest that have resulted from, or may be expected to result from, the transaction. This includes, if necessary, prohibiting the merger, accepting undertakings from the parties in lieu of a reference to a Phase II review or imposing remedies after a Phase II investigation. The CMA will advise the Secretary of State of the appropriateness of undertakings and will negotiate those undertakings with the parties.
Since the introduction of the Enterprise Act, the Secretary of State has been willing, for the most part, to accept undertakings to mitigate identified public interest concerns.
In normal merger control processes, the CMA has the power to address concerns through accepting undertakings, imposing remedies or by recommending that others (e.g., government or sectoral regulators) take action to address concerns. If it is not possible to address concerns, the CMA can prohibit a merger. The three possible options are unconditional clearance, conditional clearance and prohibition.vi Remedies available to challenge a negative decision in public interest cases
Any person aggrieved by a decision in connection with a reference or a possible reference in a public interest case (i.e., any of the three types discussed in this chapter) may appeal to the Competition Appeal Tribunal (CAT) for review of that decision. The CAT determines such appeals in accordance with judicial review principles, and has the power to quash the whole or part of the relevant decision or to dismiss the application.
Subject to judicial leave to appeal, decisions given by the CAT may be appealed before the Court of Appeal of England and Wales, the Court of Session in Scotland, or the Court of Appeal in Northern Ireland, or in certain cases the UK Supreme Court. The decision of the Secretary of State may also be subject to judicial review by the High Court on limited grounds of errors of law and procedure.vii Measures for the protection of confidential information
The Enterprise Act contains a general restriction on disclosure of specified information, including information submitted to a public authority in the exercise of any function it has pursuant to the Enterprise Act. Disclosing information in contravention of the Enterprise Act is a criminal offence.
The Freedom of Information Act 2000 (FOIA) gives any person a right of access to information that is held by a public authority. However, the FOIA contains several exemptions to the general right of access, including, in relation to information that must not be disclosed to safeguard national security, and information where disclosure would be likely to prejudice the defence of the British Islands or any colony, or the capability, effectiveness or security of the armed forces or any forces cooperating with those forces.viii Lobbyist registration requirements
Foreign investors that choose to engage external political lobbyists in connection with their proposed or existing investments in the United Kingdom should be aware of the statutory regime requiring registration of consultant lobbyists in the United Kingdom. Under the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014 (the Lobbying Act), organisations and individuals that carry on the business of consultant lobbying of ministers or permanent secretaries must be entered in the Register of Consultant Lobbyists. Any person or organisation intending to conduct the business of consultant lobbying must be entered on the Register before doing so. To comply with the Lobbying Act, consultant lobbyists must provide a quarterly update that includes the names of the clients on whose behalf oral or written communications were made (or payment was received to make) personally to a minister, permanent secretary (or equivalent) relating to UK government policy, legislation, the award of contracts, grants, licences or similar benefits or the exercise of any other government function. The registration regime does not cover in-house lobbyists advancing the interests of their own company.