Foreign Direct Investment (FDI) Review – New UK Proposals

Foreign Direct Investment (FDI) Review – New UK Proposals


[MUSIC PLAYING] Hi. I’m Al Mangan, and
I’m joined today by Carolyn Krampitz
from our Hamburg office. We’re here to give you a four
minute summary of government proposals to start screening
foreign direct investment, known as FDI, into the UK. It’s clear that
the proposal will have a major impact on
our clients, one in which AG is well-placed to advise. Currently, for transactions
exceeding certain thresholds, the Secretary of
State can intervene on the basis of public
interest considerations like national security, media
plurality, and the stability of the financial system. The Competition and
Markets Authority, or CMA, then conducts a review
similar to the one it’s just completed on advance proposed
acquisition of copper, and reports back. It looks fairly similar to
a merger control process, but the Secretary of State is
the ultimate decision maker. But for some time now in
line with the global trend, there’s been mounting
political pressure to broaden the UK system. Yeah, so initially,
the UK experimented with amending the
takeover code in order to allow it to extract
concessions from FDI. The first example of those
powers being put in place was the SoftBank acquisition
of ARM, whereupon SoftBank committed to maintain the
global headquarters of ARM in Cambridge for five years. Ultimately, though, it was
felt that a specific regime was going to be required. So in 2018, the
government consulted on two sets of measures. Firstly, an interim quick fix,
and secondly, a longer term set of proposals. The interim measures
have already been implemented, significantly
lowering the intervention thresholds and
acquisitions of companies that develop or produce military
or dual use items, CPUs, or quantum technology. The longer term
proposals, however, would be a much more
significant development, more akin to CFIUS in the US
or the German foreign trade regulation. Carolyn, could you tell us a
bit about recent developments in Germany? Yes, the regime became
significantly more onerous in 2018 and for
critical industries can now be triggered by
the acquisition of just 10% of the voting rights
and the target. And critical industries
are extremely broad and include military, software,
cloud computing, utilities, health, transport,
nutrition, and media, and much like in
merger control reviews, the authority has the power
to either issue provision or impose condition on approval. OK, so unsurprisingly,
fairly similar to what’s being proposed in the UK. Here’s a short summary of
what’s currently envisaged. The queen’s speech confirmed
the government’s intention to introduce a whole new regime,
replacing existing provisions. The regime will apply to
acquisitions of control or significant influence
over any entity or assets through share and asset sales,
as well as land transactions. It can look at any markets
which could give rise to national security risks. It’s expected, though,
that the focus will be core infrastructure, such as energy,
communications, transport, defence, and advanced
technologies, as well as critical supplies
to government and the emergency services. There are no safe harbours
or minimum value or size thresholds. Transactions that raise
national security concerns will be fully assessed. If the government concludes
the transaction presents a national security
risk, it will be able to impose conditions
or block it entirely. It will also have powers to fine
companies for noncompliance. Carolyn, there’s something
related happening at EU level, right? Yes, the UK plans reflect action
being taken at EU level, where a new framework for
screening FDI into the EU will come fully into
force from October 2020 and among other
things, will provide a mechanism for cooperation
between the member states on FDI. OK, so a lot of change
coming, but a lot of experience and expertise
already in the firm. Yes. Here’s Matt Butter from our
global investigations team. So a big part of our
team’s practise is advising on international trade
requirements such as export controls and sanctions. For example, we have
specialist expertise in carrying out export control
classification reviews. This puts us in a
really good position to be able to identify and take
into account national security considerations at an early
stage in the deal process and avoid complications and
delays further down the line. When the government bulks up
its foreign investment powers, we’ll be working closely
with the competition team and the firm will be able
to offer a unique skillset to clients in this area. The new screening
mechanism would work in a very similar
way to UK merger control, incorporating a voluntary
notification process with the power of
the authority to call a transaction in for
review in the event that the parties
choose not to notify. Most commentators expect the
CMA to be handed the role. FDI will then become an
important consideration when approaching any transaction. At present, the governments
expects 250 notifications per year with conditions
imposed in potentially up to 50 of those instances. We’ll be closely
monitoring developments to keep colleagues and
clients up to date. And in the meantime,
don’t hesitate to be in touch to discuss. [MUSIC PLAYING]

Leave a Reply

Your email address will not be published. Required fields are marked *