Breakingviews - New UK takeover rules thicken the global M&A fog

Britain's Prime Minister Boris Johnson speaks during a virtual news conference on the coronavirus disease (COVID-19) pandemic in the UK inside 10 Downing Street in central London, Britain November 9, 2020. Tolga Akmen/Pool via REUTERS

LONDON (Reuters Breakingviews) - Britain is falling in line with the rich world’s march towards protectionism. Prime Minister Boris Johnson’s new takeover rules, unveiled on Wednesday, mimic the tougher regimes of peers like America, France and Germany. The powers are sweeping and somewhat vague at the same time - an unappealing cocktail for bankers, lawyers and foreign acquirers.

Johnson is completing the job started in 2016 by his predecessor Theresa May, who sought to beef up what was widely regarded as a lax national-security screening process by international standards. Since then, ministers have patched up a nearly 20-year-old piece of government legislation so that they could scrutinise high-technology deals and other sensitive transactions. Wednesday’s bill effectively institutes a whole new process.

One big change is that Johnson will make it mandatory to notify the government of deals in sensitive sectors. He and Business Secretary Alok Sharma haven’t quite nailed down the details yet, but it’s likely that the affected industries will include energy, communications, defence and cutting-edge technologies like artificial intelligence, robotics and cryptography. As well as mergers and purchases of significant stakes, the rules will also cover intellectual property. Finally, ministers have the power to revisit deals that weren’t checked with them up to five years later - though transactions pre-dating Wednesday’s announcement are exempt.

The upshot is that acquirers of British companies and assets have a lot more on their plate. The government reckons its new regime will lead to between 1,000 and 1,830 notifications by would-be dealmakers each year, according to the Regulatory Policy Committee – a government body. Between 70 and 95 will require a full assessment for national security concerns. Crucially, the standard by which ministers can block transactions or impose conditions looks fuzzy. While national security doesn’t cover “broader economic reasons”, the government stated, it’s ultimately up to ministers to decide what it does include.

That will prove frustrating for financial and legal advisers. But it only brings Britain’s standards in line with the rest of the world. The Committee on Foreign Investment in the United States is widely regarded by dealmakers as a “black box”. Germany, Italy and Australia have recently beefed up their investment-screening regimes, while France has always been takeover-shy. Johnson’s bill will add to the uncertainty of investing in Britain - but it’s no worse than anywhere else.


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