Changes to the UK regime for scrutiny of mergers on national security grounds came into force in June 2018. In this briefing, we look at why these changes were introduced and what they will mean for business.
What was the UK regime before the latest reforms?
The UK government already had some powers to scrutinise mergers on grounds of national security - but only where the following conditions were met:
- as with any merger, where the target business has annual UK turnover of over £70 million or the merger would result in the creation (or the increase) of a share of supply of 25% in the UK; or
- the merger does not meet the thresholds in the first bullet but involves a current or former defence contractor who has (or had) access to confidential defence-related information and at least one of the merging parties carries on business in the UK.
In both these cases, the Secretary of State for Business, Energy and Industrial Strategy (the "Business Secretary") can "call in" the merger, enabling him or her to take the final decision on whether it should be allowed to proceed. Such "call-ins" are rare. However, it is not uncommon for the Ministry of Defence to take an alternative, non-statutory approach to address any national security concerns it has by using its position as a key customer of defence contractors to secure voluntary undertakings.
In the past, the UK authorities have invoked "national security" to "call in" mergers involving suppliers of armoured vehicles, defence-related submarine and aerospace technology and radio devices used by UK emergency services. EU law suggests that the concept may also cover, for example, security of energy supply (EU law is relevant because the UK's concept of "national security" includes "public security," as defined in the EU Merger Regulation). The new powers will allow greater scope for scrutiny of mergers relating to activities where there may not be any immediate/direct connection to the military, police, security or emergency services, notably:
- certain suppliers of advanced technology and military/dual use technology (as regards the short term changes); and
- critical infrastructure businesses e.g. energy, water, telecoms etc (as regards the proposed long term changes).