Government to amend UK merger thresholds for certain transactions impacting national security

In 15 March 2018, the UK government published a draft statutory instrument which (subject to approval by Parliament)  will amend the share of supply notification threshold for the UK merger control regime (section 23 of the Enterprise Act 2002) for certain sectors impacting national security (namely the development or production of items for military or military and civilian use, quantum technology and computing hardware), so that the threshold can be met solely by the activities of the target.  The government has also announced that it intends to reduce the turnover threshold to £1m for these sectors if parliament accepts the change to the share of supply threshold.  The CMA has launched a consultation on draft guidance on the proposed changes. The purpose of these changes is to enable the Secretary of State to intervene in mergers in these sectors which might give rise to national security implications.
BackgroundIn October 2017, the Department for Business, Energy & Industrial Strategy (BEIS) published its consultation paper on its National Security and Infrastructure Investment Review in which it proposed enhancing the government’s ability to intervene in mergers that raise national security issues by amending the Enterprise Act 2002 by lowering the turnover threshold at which ministers can scrutinise investment and removing the requirement for a merger to increase a business’ share of supply of, or over, 25% (see further Government proposes to increase powers to intervene in mergers which raise national security concerns, LNB News 17/10/2017 106).

Amendments to share of supply test

BEIS today announced that the rule changes being introduced by the draft statutory instrument will remove the requirement for a merger to lead to an increase in the share of supply in three areas:

• the development or production of items for military or military and civilian use

• quantum technology

• computing hardware

The draft statutory instrument amends the share of supply test so that it is met where a merger or takeover involves a target within these three areas with 25% or more share of supply in the UK, as well as where the deal leads to an increase in the share of supply to, or above, this threshold (which is the current requirement).

The proposed legislative changes are set out in the draft statutory instrument The Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2018, laid before parliament on 15 March 2018.

The share of supply threshold will not change for transactions in all other sectors.

Proposed changes to turnover threshold

BEIS has also announced that ‘[i]n the coming weeks’ the government will introduce a second draft statutory instrument that will reduce the turnover threshold in relation to the target business’s turnover to £1m (reduced from £70m) for transactions in the same sectors.  This second draft statutory instrument will be laid before Parliament once the changes to the share of supply threshold are approved.

CMA consultation

The CMA is seeking views on its draft guidance on changes to the jurisdictional thresholds for UK merger control (ie the amendments to section 23 of the Enterprise Act 2002).

The CMA’s draft guidance is intended to provide information for merging parties on the application of the new threshold. It is intended that the draft guidance will supplement the CMA’s existing guidance on the CMA’s merger control procedures (Mergers: Guidance on the CMA’s Jurisdiction and Procedure (CMA2)). The CMA’s consultation runs until 12 April 2018.

Commentary

The government is intending that the proposed changes will allow it to intervene in mergers in those sectors which might give rise to national security implications. This is the first proposed change to the notification thresholds under the UK merger regime since the Enterprise Act 2002 came into force. It remains to be seen whether further changes may be proposed to deal with any issues raised by the possibility of Brexit and the expected significant increase in merger control work for the CMA that this will entail.

• Consultation document

• Draft guidance

Source: Consultation: Draft guidance on changes to UK merger thresholds

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