Britain’s withdrawal from the European Union is a sensible moment to review the framework for changes in corporate control. Former Prime Minister Theresa May got the ball rolling in 2016, announcing a much more interventionist approach to M&A supervision. Since then, lawmakers’ concerns around Chinese involvement in U.K. infrastructure have increased. The pandemic has also triggered scrutiny of who controls global supply chains.
U.K. law already permitted ministers to intervene in takeovers on national security grounds, depending on the target company’s revenue or the merged group’s market share. Interim reforms have eased those conditions and further relaxation lies ahead. The power to undo past deals would represent another step-change in interventionist power.
You can’t ban something that has already happened. But the government could force an owner to sell what it has bought. Immediate steps would presumably be required to ring-fence the operations from the owner now deemed persona non grata. The vendor would expect assurances that it could realize the market price.
It’s possible the government believes the U.K. has let through deals that it should have blocked. Or that deals went through, say for early-stage companies with no revenue, that it wished it could have scrutinized. Whatever the reason, retroactive legislation would come with costs.
Bidders for U.K. assets would pause for fear that their deal could be unwound in the future. Entrepreneurs starting new businesses, in particular in technology, may assume that headquartering in the U.K. would limit their options when it came to selling. Foreign companies might see U.K. subsidiaries as a poison pill. Better then to relocate those activities, and their jobs, out of Britain.
Clearly, a forced disposal could not undo the transfer of any sensitive know-how that had already happened. Indeed, lawyers at Herbert Smith Freehills LLP point out that restricting ownership is a curious remedy when the U.K. has no controls on where a company acquires its technology or who uses it.
There were already fears that giving politicians more power to kill deals on national security grounds would open a channel for lobbying by companies that just don’t want to be bought, as John Fingleton has warned. A former antitrust regulator in the U.K. and Ireland, he has also cautioned that ministers could use the regime to approve domestic mergers that would otherwise have failed on competition grounds.
For now, it’s unclear whether lawmakers will introduce retroactive powers. National security should not be subject to trade-offs. But if such measures are necessary, the government needs to commit that it won’t use them to oppose foreign bidders that don’t present security issues — whether buying poor-performing companies that need a strong parent or well-run firms for which they are willing to pay up.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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