New attempts to curb takeovers not to everyone’s taste
Eight years after Cadbury’s headline deal, ‘national security’ rules may soon apply, writes Jack Torrance
Anyone keen to get a sense of how controversial the issue of foreign takeovers remains in the UK need only spend a minute browsing Cadbury’s Dairy Milk Facebook page.
Even eight years after it was subsumed by US giant Kraft (now Mondelez), the organisation is bombarded with complaints about how much better the chocolate brand’s treats used to taste.
That deal, which for many people represented a blow to Britain’s national identity, has remained a touchstone in the debate over state intervention in foreign takeovers.
Despite vocal calls in some quarters for a more active approach, the Government has remained fairly restrained in the years since. Coalition and Conservative ministers have been mindful of maintaining the UK’S reputation for being “open for business”, and wary of discouraging the tens of billions of pounds worth of foreign direct investment that flow into the economy each year.
But a new shake-up of the takeover regime, which ministers insist is entirely about national security rather than economic interventionism, has provoked concern among some in the City that it could make deals more expensive and kill off others altogether.
The proposed new system would hand the Government the power to block takeover deals across all sectors in the economy, rather than just those obviously related to national security such as arms manufacturers and cyber security firms.
Companies planning a deal will be expected to consult as-yetunpublished guidelines about what sorts of transactions are likely to raise security concerns and to notify the Government if this is the case.
Officials estimate they will receive around 200 such notifications per year, some 50 of which will be “called in” and subjected to greater scrutiny that could lead to the acquiring company being forced to accept certain conditions or call off the tie-up altogether.
That compares with just one deal being called in last year.
Private equity veteran Jon Moulton, whose recent sale of Northern Aerospace to the Chinese-owned Gardner Aerospace was almost scuppered last month after the Government called it in, has warned that many companies which don’t expect to get caught up in the rules could be in for a surprise. “I can’t for the life of me see we’ve got 50 transactions happening at the moment which represent a threat to national security,” he tells The Daily Telegraph.
On the other hand, 200 notifications seems like an underestimate, Moulton thinks.
“The drafting they’ve got is so wide that if you’ve got a company that does pretty well anything in computer hardware, anything that could be used by the military, even if it’s not the main use [it could be included].
“The list of stuff that’s covered at the moment includes any company that makes balloons – and that includes toy balloons. It’s an extremely wide set of things that are caught.”
Those that do get called in could be in for a long wait. After an initial scrutiny period of 30 days, the Government will be able to extend the review by as much as another 45 days if a national security risk has been identified.
“In the context of a transaction, 75 days can be absolutely crucial,” says Justin Welstead of M&A consultants Eight Advisory.
Even those companies that aren’t seen as a security risk could end up caught in red tape, warns Oliver Welch of the manufacturers’ trade body EEF.
“It needs to be absolutely clear when and where you need to put these notifications in – we wouldn’t want businesses to feel like they’re going to inadvertently fall into a trap by not notifying, or disadvantaging themselves by putting in notifications that were unnecessary,” he says.
The Government has been at pains to insist the new regime will only focus on security threats, emphasising that national security “is not the same as the public interest or the national interest”.
But in light of Donald Trump’s attempts to justify US steel tariffs on security grounds, there are worries the new powers will allow the Government to spuriously block deals out of political expediency.
Alasdair Steele, an M&A specialist at law firm CMS, says: “There’s always going to be scope for whichever party is in power and whichever way the political winds are blowing for national security ... to be stretched beyond what we might ordinarily think of.”
The new regime may be the boldest push for new takeover powers in years but there will still be many who feel the plans don’t go far enough.
The Labour Party has accused the Government of “failing to protect workers or their pensions” in its new proposals, and has said it will “look at ways of broadening the public interest test to stop short-term predatory takeovers” that could damage the economy.
As the case of Cadbury continues to loom large in voters’ minds, expect this debate to rumble on.