On 16 November 2022, after a drawn-out review process lasting almost 6 months, the acquisition by Nexperia (a Netherlands-based subsidiary of Chinese phone manufacturer Wingtech Technology) of a majority stake in Newport Wafer Fab (Newport) was prohibited. As the transaction had completed (back in July 2021), the practical effect was to require Nexperia to divest at least 86 percent of Newport (this being the percentage acquired under the transaction in question).
By way of background, on 25 May 2022, the acquisition by Nexperia of Newport was retrospectively ‘called-in’ for a full national security assessment. Newport, based in Wales, is the UK’s largest manufacturer of semiconductors.
The then-Secretary of State, Kwasi Kwarteng MP, had initially opted not to formally review the deal under the NSI Act. However, only days later, the decision was reversed following pressure from other politicians and industry players, and the transaction was ‘called-in’ for review. The case fell under the purview of three successive Secretaries of State: with the final decision being taken by Grant Shapps MP, as successor to Jacob Rees-Mogg MP and previously Kwasi Kwarteng MP. After delaying the review period on three occasions, the UK Government prohibited the transaction, requiring Nexperia to divest of the Newport shareholding that it acquired under the deal in question.
This case therefore illustrates that risks of call-in (and the resulting potential for far-reaching remedies) remain and are, in part, subject to moving political landscapes here in the UK. Landscapes which may continue to move following recent appointments of new Secretaries of State (and indeed, the UK Prime Minister).
Again, the acquiror has Chinese links. The Government's concern can be broadly characterised as a risk of know-how and other expertise being accessed by, or leaked to, a politically sensitive state. The final order refers to a national security risk relating to technology and know-how that could result from the potential reintroduction of compound semiconductor activities at the Newport site (and the potential for those activities to undermine UK capabilities), as well concerns surrounding the location of the site (based in the 'South Wales Cluster' of semiconductor activities). In the UK Government's view, the location of the Newport site risked facilitating access to technological expertise and know-how in the South Wales Cluster, potentially preventing the Cluster from being engaged in future projects relevant to national security. Whilst not stated in its final order, Government concerns have also been reported surrounding the well-publicised chip shortages in the UK.
The prohibition is therefore not out of kilter with the Government’s appetite to make full use of its powers under the NSI Act where UK national security concerns arise. Nexperia has stated its intention to appeal the final divestment order, referring (amongst other matters) to an offer that it states was made to the UK Government to refrain from conducting the compound semiconductor activities of potential concern.