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Government plans to tighten M&A rules sends out the wrong message

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Isn’t the UK meant to be open and ready for business post-Brexit?

The government has proposed new plans to restrict inbound M&A activity. In the interests of national security, the business and energy secretary, Greg Clark, has set out plans targeting businesses in the advanced technology sector, specifically those involved in designing and manufacturing military and dual use products.

At present, the Enterprise Act 2002 allows the government to intervene in takeovers on “exceptional public interest” grounds. The government can block a deal if a business has a UK turnover of more than £70m, or if the UK market share of the merged product would be 25% or more. The proposals would vastly reduce this to a mere £1m, and remove the market share requirement.

Clark said that:

“Britain has always had a proud record of being open to the world as the foremost advocate of free trade. No part of the economy is off-limits to foreign investment and the UK will continue to be a vociferous advocate for free trade and a magnet for global talent.”

The government is wary that having ownership of critical businesses or infrastructure could open the UK up to the risk of espionage, sabotage or leverage, the green paper states.

This protectionist attitude was also seen in the Prime Minister’s reluctance to allow China to invest in Hinkley Point, and when she questioned the Kraft acquisition of Cadbury. It seems that politics and public perception of deals can affect whether they are given the green light (see the AstraZeneca/Pfizer failed deal).

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These proposals, if they become law, could seriously discourage foreign investors from entering into deals with British businesses.

At present, the proposals are vague so there is the concern that the rules could be used by government to halt any deal they don’t like the look of. Foreign companies will not want to invest huge sums of money, only to have their deal cancelled by the UK government.

Even if there is no major impact from the proposals, as Angus Coulter, a partner at Hogan Lovells pointed out, these protectionist new rules are at odds with the ‘UK open for business’ stance the government is trying so hard to convey. Other corporate lawyers echoed the same concerns. Alex Kay, an M&A partner at Herbert Smith Freehills, was concerned that the proposals “could be seen as a deterrent by certain overseas acquirers”.

Nigel Parr, a partner at Ashurst, said that the proposals mean that investment from “certain countries will be looked at much more closely” and will “increase uncertainty and a lack of predictability” as well as raise doubts over transparency.

While it’s right to regulate foreign investment and takeovers to an extent, we already have a Takeover Panel and a public interest test, as well as the Competition and Markets Authority. The UK has a strong history of inbound and outbound M&A activity, is a prime location for business, and right now the weak sterling makes UK assets cheap for foreign buyers. Low interest rates also make deals cheaper and UK companies more attractive.

However, the government’s attitude could lead to companies moving their business away from the UK, a reduction in inbound M&A activity, and Britain’s reputation as a free market economy being tarnished.

National security is of the utmost concern, but at this critical time, where the UK is actively seeking new trade deals and to attract business, these proposals are sending the wrong message to the rest of the world.

Fraser Collingham is a University of Nottingham law graduate and future trainee.

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12 Comments

Anonymous

VOTE LEAVE

TAKE BACK CONTROL

WINNING

Anonymous

Angus Deayton thinks you are a c*nt. I think you are a c*nt.

EU > UK. Why would we leave something that is better than us. It is complete nonsense. When the currency dropped 20% we all became up to 20% poorer. There will be less immigration which is a disaster for London.

I am moving to Colombia or Chile or maybe Brazil after this Brexit nonsense. It is much better there.

Anonymous

OFF YOU FVCK TO BRAZIL THEN

VOTE LEAVE TAKE CONTROL

Anonymous

I’ll be a massive loss to this country, because this country is crap.

I’ll be no gain to Brazil, because Brazil is a great nation.

I will be better off, which is the most important thing.

Anonymous

This is one of those wonderful occasions where I get to downvote both of your comments

Anonymous

I agree with you. I have never felt so ashamed to be British. I wish I had the option to move away. Stuck on this sh*tty island forever.

Anonymous

Who is Fraser Collingham?

Anonymous

a University of Nottingham law graduate and future trainee.

Anonymous

A man with a lovely pert bottom

Anonymous

Why don’t they focus on tightening the lax rules on immigration and deportation first?

Anonymous

Sounds wise to me, and naïve to oppose. We’re already vulnerable to hostile foreign states destabilising our property market. If foreign investors have good intentions, why should they worry about the govt intervening?

Anonymous

Fraser, would the right message be to say ‘Here, my ass is unguarded. Come f*ck it?’

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