Would the UK Takeover Code benefit from new protectionist measures?

Following the planned acquisition of domestic companies (such as AstraZeneca) by foreign corporations, do the UK’s merger rules need amending? Mark Curtis, a partner in the corporate & commercial team at Simmons & Simmons LLP, discusses whether the public interest categories should be extended, comparing the rules of other European regimes.

What are the latest developments in relation to the takeover of domestic companies by foreign corporations?

In the UK, the controversial possible offer for AstraZeneca by Pfizer (in May 2014) has reignited concerns which arose following the takeover of Cadbury plc by Kraft Foods. in 2009. Press speculation has been rife about the possible introduction of protectionist measures, including extending the ‘public interest’ test (which allows the government to intervene on grounds of national security, media plurality and financial stability).

To date no concrete proposals have been introduced. The Takeover Panel has introduced proposals to amend the UK Takeover Code to give it greater ability to monitor and enforce any undertakings given by bidders in relation to how they will conduct an acquired business post acquisition. These changes are not specifically targeted at takeovers by foreign companies, although the issue of the bidder’s plans for the business post-acquisition was a hot topic in Kraft/Cadbury and Pfizer/AstraZeneca.

How do the UK rules compare to those in other European countries?

Under the EU Merger Regulation (EC) No 139/2004, any EU member state can ask the European Commission to refer back to it aspects of a merger that would otherwise be reviewed exclusively by the Commission on competition grounds, provided it can demonstrate a ‘legitimate interest’. Explicitly recognised interests are public security, plurality of media and prudential rules.

UK

Under the UK merger control regime, the Secretary of State can intervene in transactions being reviewed by the Competition & Markets Authority (CMA) only on the public interest grounds mentioned above—though Parliament is entitled to approve new categories of public interest considerations.

France

In France, by contrast, prior authorisation of acquisitions in a list of sectors deemed to be of national interest is required. Significantly expanded in May 2014, that list now includes energy, transport, communications, water and public health.

Germany

Germany has foreign investment rules that allow the government to review the acquisition of 25% or more of the voting rights in any German target by a bidder from outside the European Economic Area.

Are they too protectionist? What are the positives/negatives of their position?

The positives are that countries are able to protect national champions and maintain employment in those industries.

The negatives are that protectionism ultimately restricts long term growth and investment.

Are we not protectionist enough? What are the positives/negatives of our position?

This is a question of judgment. The UK benefits from being open to foreign direct investment that:

• allows companies to grow and compete internationally

• introduces fresh ideas and expertise into the country

• has resulted in London having a thriving capital market

Do you expect further changes to the public takeover regime?

I don’t expect protectionist measures to be included in the UK Takeover Code. It remains to be seen whether the government will expand the public interest categories under UK merger control or introduce foreign investment rules. The CEO of the CMA has warned against re-politicising merger control in this way. In mergers with an EU dimension, the scope to do so is in any event constrained.

Interviewed by Neil Fanning.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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