The Foreign Investment Regulation Review: United Kingdom

Overview

There is no specific regime in the United Kingdom that governs foreign investment or any formal policy distinction. Despite some political discussion in the past decade about introducing a 'national interest' test for foreign takeover bids,2 the government has rarely intervened to prevent foreign investment into the United Kingdom on national security or other public interest grounds.

In more recent years, however, major developments in geopolitics, technology and global supply chains have led to growing concerns that foreign investment could be used to undermine national security interests. At the time of writing, new rules are being introduced in the United Kingdom, bringing it closer in line with developments seen in several other countries, including the United States, other Five Eyes allies (Australia, Canada and New Zealand) and certain Member States in the European Union.

This chapter focuses on the forthcoming UK national security screening regime under the National Security and Investment Act 2021 (NS&I Act), which will enter into force on 4 January 2022 and will replace the current system for national security scrutiny under the Enterprise Act 2002 (EA02). While not billed as a foreign investment regime – the NS&I Act also applies to British investors – it was conceived out of the government's review of its powers in relation to foreign investment and national security.

i Key elements of the new UK national security screening mechanism

The NS&I Act, which can also extend to certain investments outside the United Kingdom (discussed below), has three key aspects:

  1. mandatory notification of transactions in 17 strategically sensitive sectors;
  2. voluntary notification for transactions that are not subject to mandatory notification; and
  3. for transactions outside of the mandatory notification system, powers for the UK government to call them in for review up to five years after closing of the relevant transaction.

While an investor must acquire some form of control over the target entity or asset for the transaction to be reviewable (discussed below), the NS&I Act does not have any notification thresholds or safe harbours based on the target's turnover or share of supply in the United Kingdom, meaning transactions with very limited nexus to the United Kingdom can be caught. It suffices for a target entity to carry on activities in the United Kingdom, or to supply goods or services of any amount to persons in the United Kingdom. Indeed, its broad scope compared with the predecessor EA02 regime is expected to considerably increase the number of investments that are screened for national security issues. Nevertheless, the government has assured that it expects only a small proportion to merit detailed assessment (fewer than 10 per cent) with even fewer (1 per cent) requiring remedies.3 The creation of a more structured process for notifying and assessing transactions for national security issues is also expected to provide investors with some welcome procedural and timing certainty.

A government press statement outlines as follows:

The vast majority of acquisitions will require no intervention and will be able to proceed quickly and with certainty in the knowledge that the government will not revisit a transaction once cleared unless false or misleading information was provided.4

ii Other statutory frameworks

In addition to the NS&I Act, there are some additional review frameworks that may apply to investments in the UK:

  1. for transactions that meet the thresholds for review by the UK competition law enforcer, the Competition and Markets Authority (CMA), the EA02 also enables the government to intervene based on a defined set of public interest considerations, namely media ownership and plurality, financial stability, and the United Kingdom's ability to combat public health emergencies (unlike national security, the domestic or foreign status of the investor tends to be of limited relevance).5 The government may also specify additional public interest considerations where considered necessary. Until the NS&I Act comes into force, national security is also covered by this regime;6
  2. for investments in regulated sectors,7 additional licences, consents or authorisations may be required from the relevant government department or independent regulator;
  3. consent from the relevant ministerial department may be required where the target whose shares are being acquired is one of the few UK companies in which the government holds a special share, also called 'golden share'; and
  4. under Section 13 of the UK Industry Act 1975, the Secretary of State can prohibit foreign takeovers of an 'important manufacturing undertaking' that are against the interests of the United Kingdom or a substantial part of it. There is no public record of this provision having ever been used to block an acquisition of a UK business since its enactment.

Details of these regimes and additional controls are outside the scope of this chapter (although their potential applicability should be investigated before one undertakes investment activities).

iii Political interventions and voluntary undertakings

Whether or not an investment is being formally reviewed under one of the above statutory regimes, where a UK target is likely to be sensitive and attract a high profile in terms of media or political interest, the government will sometimes seek assurances from the investor to allay its concerns around the change in ownership.

These generally take the form of voluntary economic undertakings relating to the future management, structure and investment of the target (although in some cases undertakings have also been offered to avoid a formal national security intervention under the EA02 regime). Where the target is a UK public company, the government will sometimes, with the agreement of the Takeover Panel, ask for such undertakings to be memorialised as legally binding 'post-offer undertakings' enforced by the Takeover Panel.8 In other cases, investors may be asked to provide informal assurances or enter into deeds of undertakings with the relevant ministerial department. Prominent examples of political interventions that resulted in voluntary, but binding, undertakings include Melrose/GKN (2018) and Advent/Blackstone/Cobham (2019).9

Investors should therefore be alert to the additional execution risks for investments of this nature, whether or not review under the NS&I Act is triggered.

Year in review

The NS&I Act received royal assent on 29 April 2021.10 The NS&I Act, along with the more detailed secondary legislation, will enter into force on 4 January 2022.

Foreign investment regime

i Policy

The NS&I Act will be used by the government to screen transactions for national security issues. In response to concerns around the regime's broad scope, the government has stressed that the new system will be used in a proportionate manner and will not be used to address wider public or economic interests.11 Nevertheless, its application will likely adopt a broad concept of national security, for example to reflect growing concerns around loss of control over critical and emerging technologies (often developed by innovative start-ups).

The government has recently stated in a policy paper on international and national policy:

We will take a more robust approach in response to the deteriorating global security environment, adapting to systemic competition and a wider range of state and nonstate threats enabled by technology.12

ii Laws and regulations

The primary legislation is the NS&I Act, which will enter into force on 4 January 2022. The NS&I Act will be administered by the new Investment Security Unit (ISU) within the Department for Business, Energy and Industrial Strategy (BEIS) and the Secretary of State for BEIS (SoS) will be the final decision-maker.

Certain aspects of the regime are governed by secondary legislation, notably the Notifiable Acquisition Regulations (NARs), which set out the sectors subject to mandatory notification requirements, and formal government guidance on how the SoS expects to use his or her call-in powers (the Call-In Power Statement), which may be updated from time to time to reflect prevailing national security risks, among other considerations. Certain details around the administration of the regime will also be prescribed in secondary legislation, such as the form and content of notification forms and the ISU's powers for requesting information. The government has also published guidance on certain topics under the NS&I Act.13

Interaction with other regimes

The NS&I Act regime is entirely separate to any review of competition issues by the CMA pursuant to its merger control powers under the EA02. Where a transaction is reviewable under both regimes, competition and national security reviews will run in parallel under separate processes, although the ISU and the CMA are expected to work closely together to manage the case (e.g., to ensure that any competition remedies do not run contrary to national security interests).14

The public interest regime under the EA02 will continue to be the formal statutory framework for the government to intervene in transactions that raise concerns in relation to media ownership and plurality, financial stability, and the United Kingdom's ability to combat and mitigate the effects of public health emergencies (the last limb was introduced during the covid-19 pandemic). There will be no overlap between the new NS&I Act and the national security aspects of the EA02 regime that the NS&I Act will replace: a merger that has previously been subject to a national security intervention under the EA02 cannot be called in under the NS&I Act.15

The NS&I Act regime is also expected to operate in tandem with other regulatory regimes in the United Kingdom, such as the Takeover Code, UK export controls and financial services regulations. Interactions between the NS&I Act and the CMA's merger control regime or other regulatory regimes will be facilitated through memoranda of undertaking, and the exchange of information between other enforcement authorities and the ISU.

iii Scope

The NS&I Act applies where arrangements that bring about the acquisition of control of a 'qualifying entity' or 'qualifying asset' (called a trigger event) have occurred or are in progress or contemplation. Specifically:

  1. a 'qualifying entity' includes any entity that is not an individual and includes a company, any other body corporate, a partnership, unincorporated association or trust.16 Foreign entities are caught if they carry on activities or supply goods or services to persons in the United Kingdom;17 and
  2. a 'qualifying asset' is defined widely to include not only land and tangible property, but also ideas, information or techniques that have economic value (e.g., software, trade secrets, databases, algorithms and designs).18 Physical property located outside the United Kingdom is captured if it is used in connection with activities carried on in the United Kingdom or the supply of goods or services to persons in the United Kingdom.19

The requisite level of control obtained for a transaction to be reviewable under the NS&I Act differs depending on whether the transaction is subject to mandatory notification and whether the target is an entity or asset (see below). As noted above, there are no turnover, asset value, or share of supply or market share, or other notification thresholds in either case.

Transactions subject to mandatory pre-screening under the NS&I Act

The mandatory notification regime applies to investments in certain designated sectors closing on or after 4 January 2022 (this excludes asset acquisitions, which may nonetheless be reviewed by the government using its call-in powers or pursuant to a voluntary notification – see further below). Details of the relevant sectors are set out in the NARs, which fall into four core areas covering 17 sectors:

  1. critical national infrastructure (i.e., civil nuclear, communications, data infrastructure, defence, energy and transport);
  2. advanced technologies (e.g., artificial intelligence, advanced robotics, computing hardware, cryptographic authentication, advanced materials, quantum technologies, satellite and space technologies, and synthetic biology);
  3. critical suppliers to government and emergency services; and
  4. military and dual-use.

Investments in qualifying entities active in these sectors must be notified to the ISU for pre-clearance if it results in a person acquiring shares or voting rights that meets, or passes, the following thresholds:

  1. transactions that bring that person's shares or voting rights in a qualifying entity from below to above 25 per cent, 50 per cent and 75 per cent – this therefore covers acquisitions of incremental stakes in the same qualifying entity; or
  2. acquisitions of voting rights that enable the acquirer to secure or prevent the passage of any class of resolution governing an entity's affairs.20

The government may amend the scope of transactions requiring mandatory notification, for example to include asset acquisitions21 or exempt certain types of acquirers.22 However, at the time of writing, the government has not made use of this power.

Notifiable acquisitions that complete before receiving clearance will be legally void,23 in addition to being liable for review under the NS&I Act indefinitely (or six months from the date that the SoS became aware of the transaction)24 (see further below under 'Procedures').

Transactions subject to SoS's call-in powers under the NS&I Act

An investment that is not caught by the mandatory regime (e.g., an asset acquisition or an acquisition in a non-mandatory sector) is potentially reviewable if it involves a person acquiring control in a qualifying entity or asset. Such transactions can be either voluntarily notified by the parties or called in by the SoS.

This part of the regime covers a wider range of transactions:

  1. for investments in qualifying entities, in addition to acquisitions resulting in a level of control that can trigger a mandatory notification, acquisitions that enable the acquirer to materially influence the policy of the target entity are also reviewable.25 The government has confirmed that it will align with the CMA's guidance in assessing whether there has been an acquisition of material influence.26 In other words, there will be no bright line test for material influence: facts such as the acquirer's resulting shareholding, board representation and veto rights in the target will be considered in the round; and
  2. investments in qualifying assets are reviewable if they involve the acquisition of a right or interest that gives the acquirer the ability – or enhances its ability – to use the asset, or direct or control how the asset is used.27

Transactions not notified under the voluntary procedure, which the SoS reasonably suspects has given rise to, or may give rise to, a risk to national security, can be called in up to five years post-completion, provided the call-in power is exercised within six months of the SoS becoming aware of the transaction.28 There can only be one call-in notice per transaction.29

Transactions entered into before the NS&I Act comes into force

Mandatory notification requirements only apply to transactions completed on or after the NS&I Act enters into force (i.e., 4 January 2022). However, qualifying transactions that have closed as early as 12 November 2020 can be called in by the SoS provided they are within the applicable timeframes:

  1. transactions brought to the attention of the SoS before the NS&I Act is operational may be called in up to six months after the commencement date; and
  2. if the SoS becomes aware of the transaction on or after commencement, they must call it in within six months of becoming aware of it and within five years of commencement.30

Until the NS&I Act comes into force, the government may choose to intervene formally in transactions on national security grounds using its existing powers under the EA02. If it does so, then a transaction cannot be called in separately under the NS&I Act.31

iv Voluntary screening

Transactions that qualify for call-in by the SoS may be voluntarily notified by the parties under the NS&I Act. This applies only to transactions not subject to mandatory notification requirements.

There is no statutory definition under NS&I Act that would give investors clear comfort as to what constitutes – or falls outside of – the concept of national security, which will be assessed on a case-by-case basis.32

The primary official guidance that investors and businesses can rely on is the NS&I Act Call-In Power Statement, which at the time of writing is still in draft form. This sets out a three-pronged approach to assessing national security risks, which takes into account the risk profile of:

  1. the target (in particular the sector in which it is active);
  2. the acquirer (and its ultimate controller) (including any links to a hostile state or organisation); and
  3. the type or level of control acquired.33

To assist parties deciding whether to notify voluntarily, the government will also publish market guidance notes that draw on analyses of notifications received over time and market monitoring intelligence.34 Indeed, the government has said that while it expects that there will be an initial spike of notifications at the start of the regime, the volume of over-cautious notifications will decrease as the regime is better understood.35

Meanwhile, it is possible to consult the ISU for informal guidance on the proper interpretation of the NS&I Act and receive non-binding advice on whether a transaction is likely to be called in after the regime commences.

Additional considerations

For transactions not subject to mandatory notification but at risk of being called in, the voluntary notification procedure can be used to increase deal or timing certainty. Where a transaction is notified, the five-year window for the SoS to call in a transaction post-completion is reduced to 30 working days from submission of a complete voluntary notification.

v Procedures

Party responsible for notification

Where a transaction falls under the mandatory notification regime, the obligation to notify falls on the person gaining control over the qualifying entity (typically the acquirer).36

Failure to gain the requisite pre-clearance will void a completed transaction and may result in significant penalties, including:

  1. for businesses: a fixed penalty of up to 5 per cent of worldwide turnover or £10 million (whichever is greater);37 and
  2. for individuals: a fixed penalty of up to £10 million and imprisonment for up to five years.38

A completed transaction that is void on this basis can be subsequently rendered valid again if cleared by the SoS, either following an application from any person materially affected by the fact the acquisition is void or if the SoS otherwise becomes aware of the transaction (following which the SoS is required to either call in the transaction or retroactively validate it).39

A voluntary notification, however, can be made by the seller, acquirer or qualifying entity.40

Review timeframes

The timeframes for a review under the NS&I Act are as follows:

  1. for both mandatory and voluntary notifications, an initial screening period of up to 30 working days, beginning on the day the SoS confirms acceptance of a complete (mandatory or voluntary) notification;41
  2. for transactions that have been called in for a full review – either following the initial screening or pursuant to the government's call-in powers for non-notified transactions – an assessment period of 30 working days, with a possible extension of a further 45 working days;42
  3. a further extension of the assessment period can be agreed between the SoS and the parties (e.g., to agree the form and scope of remedies), but only where the SoS concludes that the transaction has given risen to, or would give rise to, a risk to national security;43 and
  4. requests for information during the assessment period will automatically suspend the review period until the parties have responded.44

Information required

Notifications will be submitted to the ISU via a new online portal. The content of the notification form will be confirmed in secondary legislation, although the notifying party will, at a minimum, be expected to provide information regarding the transaction, the qualifying entity or asset and the acquirer (including details of its ownership structure). The ISU may reject applications that contain insufficient information to allow it to decide whether to issue a call-in notice.45

During the course of its review, the ISU also has wide-ranging powers to request additional information for its analysis via information and attendance notices. There are significant penalties for non-compliance with these notices, including a fixed penalty of up to £30,000 or a daily rate penalty of up to £15,000 per day.46 An individual may additionally face up to two years' imprisonment.47 There are similar sanctions for supplying false or misleading information to the ISU and delaying, suppressing or obstructing the provision of information.

Interim measures

While a transaction is still under review, the SoS may issue interim orders where necessary and proportionate to prevent parties from taking pre-emptive action (such as completing a transaction) that might prejudice the imposition of remedies.48 The SoS has recently exercised similar powers in the context of national security reviews under the EA02 regime.49

Investors contemplating global deals that have a connection to the UK should therefore be mindful of the potential extra-territorial effect of these interim measures, which could effectively 'freeze' the transaction on a worldwide basis.

Possible outcomes

Following a national security assessment, the government will be able to either clear, impose conditions on or block or unwind deals where it concludes there is an unacceptable risk to national security. Contrary to the approach under the EA02 regime, parties are not able to offer undertakings to avoid an in-depth review.

On the basis of remedies applied in previous national security interventions under the EA02 regime, the types of conditions imposed under the NS&I Act could involve:

  1. restricting the amount of shares or voting rights acquired;
  2. ring-fencing sensitive information, technology or certain operational sites (or all three);
  3. restricting the transfer or sale of IP rights;
  4. requirements on board composition or key personnel appointment;
  5. requirements to maintain existing strategic capabilities in the United Kingdom (e.g., under the control of UK companies); and
  6. requirements to maintain the acquired entity's existing contracts and supply chain.50

As with interim orders, it is possible for the final order imposing remedies or blocking the transaction to have extra-territorial effect, provided it is necessary and proportionate to address the national security risk.

The same penalties that apply to completing a transaction without gaining the requisite pre-clearance under the mandatory regime can apply in the case of failure to comply with a final order or interim order. Alternatively, such person may face a daily penalty of up to £200,000 or, in the case of businesses, up to 0.1 per cent of worldwide turnover (whichever is greater).51

Appeals

The NS&I Act provides for an appeal process to the High Court based on judicial review principles, whereby appeals are brought against the lawfulness of a substantive decision or other decisions or actions by the SoS under the NS&I Act. The exception to this is decisions relating to civil penalties, where a full merits appeal will be available.52

There is a 28-day limit after the grounds to make the claim arose.53

vi Prohibition and mitigation

At the time of writing, there have been no prohibitions or mitigations under the new NS&I Act regime, which is yet to enter into force. According to government estimates, only a small proportion of transactions notified will merit detailed assessment (fewer than 10 per cent) with even fewer (1 per cent) will require remedies.54

While the government has rarely intervened on national security grounds under the existing EA02 regime (there have only been 13 national security interventions since the regime came into force in 2003),55 the circumstances and outcomes of recent interventions suggest a more cautious approach to national security reviews.

For example, Connect Bidco/Inmarsat (2019) and Advent/Blackstone/Cobham (2019) were the first two UK national security cases that involved private equity buyers.56 In both cases, the government examined the composition of those funds and considered whether this presented risks of unauthorised access to sensitive information held by the target and the influence of the consortium members over the target's future direction and strategic capabilities.57

In 2020, for the first time, two separate deals were abandoned following formal national security interventions by the UK government. Aerostar/Mettis (2020) and Gardner/Impcross (2020) both involved attempted acquisitions by a Chinese-owned investor of a UK aerospace manufacturer. At the time of intervention, interim orders preventing the integration of the merging parties were issued by the SoS in both transactions (previously only issued once in the history of national security interventions under EA02).58 Furthermore, after the deals were abandoned, the acquirers were asked to provide additional assurances that the transaction would not proceed.59 While the transactions were not formally blocked, considering the SoS's enforcement approach and the prevailing political climate, it is likely that the United Kingdom's national security intervention was a key factor in the failure of the transactions.

The government's latest national security intervention under the EA02 – NVIDIA/Arm (2021) – will be its first in the semiconductor sector (which falls under one of the mandatory sectors in the upcoming NS&I Act regime). Whereas Arm's current owner, Softbank, was able to avoid a national security intervention in 2016 by giving a series of post-offer undertakings to maintain and grow Arm's UK activities, a similar pledge by a US chip maker was not sufficient to prevent the UK government from formally intervening.60

Sector-specific requirements

i Prohibited sectors

There are no sectors in the United Kingdom in which foreign investment is prohibited.

ii Restricted sectors

There are no sectors in the United Kingdom that are specifically restricted for foreign investors.

However, there are a limited number of UK companies in which the government holds a golden share, shares which have been put in place as part of the privatisation of national assets or stated-funded investments in strategically important sectors, such as defence or nuclear.61 A golden share typically gives the government the ability to veto future share transfers or certain clearly defined management decisions of the company. A number of golden shares also include powers over the disposal of material assets.62

As explained above, investments in certain sectors that meet the applicable thresholds are subject to mandatory screening under the NS&I Act.

Typical transactional structures

There are generally no specific legal considerations facing foreign entities that seek to set up new facilities or businesses, or to carry out mergers and acquisitions in the United Kingdom, above and beyond the considerations that also apply to domestic investors.

Other strategic considerations

As a foreign investor, there are various factors that could affect the risks and structuring of a contemplated transaction (in particular those factors that point to a heightened risk of national security review or political intervention). These include for example:

  1. the transaction structure (i.e., share or asset purchase, as asset purchases do not lead to mandatory notifications, but may still be called in);
  2. the identity of the target, in particular:
    • the sectors in which it is active (e.g., defence, regulated or otherwise falling within one of the mandatory sectors under the NS&I Act);
    • any government links that could trigger additional government review or consent requirements (e.g., golden shares, defence contracts or strategic government funding);
    • whether it is a public company subject to the Takeover Code (which governs the timing of takeovers, disclosure requirements and various obligations regarding documentation and announcements to shareholders of a target company, including the bidder's plans for the target company); and
    • where the target is based outside the United Kingdom, the extent to which it has links to the United Kingdom (e.g., by way of supply of goods and services to or activities carried on in the United Kingdom, which may bring the transaction within scope of, or elevate the risk of, a national security review);
  3. the level of control acquired (which can impact the relevant statutory regimes that apply and the likelihood of intervention);
  4. characteristics of the investor itself that could elevate national security risks (e.g., existing activities within or related to the target sector, any links to national governments or state entities and track record of investments); and
  5. likely political or public perception (which will likely involve a combination of acquirer identity, target profile and strategic drivers for the deal, and how it will affect the United Kingdom).

Where a transaction presents substantive risks of a national security review under the NS&I Act, below are some of the key issues that should be considered at the outset:

  1. timing of the national security review and impact on the overall deal timetable (including interactions with the timing of other antitrust or regulatory reviews);
  2. impact of possible remedies on buyer's future plans for the target or exit strategy (or any impact on buyer's ability to offer antitrust remedies);
  3. contractual protections in transaction documentation (e.g., conditionality, risk allocation measures, long stop date, cooperation from seller or target, national security warranties or indemnities); and
  4. confidentiality issues that could affect buyer's ability to conduct due diligence on the target's most sensitive activities.

Outlook

Notwithstanding recent developments, the UK government is keen to assure investors that the United Kingdom remains 'open for business', and has recently set up the Office of Investment and the Investment Council to continue to encourage investment into the United Kingdom.63

We can, however, expect a more cautious attitude towards certain types of investments, especially those that pose a higher risk to national security. In addition to the traditional military and defence sectors, there will be a growing focus on transactions that involve advanced or emerging technologies (including important UK R&D hubs), critical national infrastructure and the resilience of critical supply chains.64

The government is also proposing new powers to block companies from listing on the London Stock Exchange if they pose a national security risk.65

The present climate also suggests that foreign takeovers of sensitive UK assets or technology are at risk of becoming increasingly politicised. Heightened publicity and political sensitivity have already manifested in recent transactions and will likely continue under the NS&I Act. For example, the government has already this year signalled interest in the following transactions: Nexperia/Newport Wafer Fab,66 Parker Hannifin/Meggitt, 67 Ganfeng Lithium/Bacanora Lithium68 and Cobham/Ultra Electronics,69 some of which may be subject to a formal national security intervention in due course.

Following the United Kingdom's departure from the European Union, the CMA (the United Kingdom's competition authority) has already been seen asserting jurisdiction over global transactions that have limited connection to the United Kingdom. Similarly, the government's ability to intervene on national security grounds does not stop at UK borders; there are broad powers under the NS&I Act for the government to freeze, block or impose conditions on transactions with only a limited nexus to the United Kingdom (and, unlike merger control review, there are no minimum requirements around target's turnover, or share of supply or market share in the United Kingdom). Investors will need to be mindful of additional deal risks in sensitive sectors, even where the investment is taking place outside the United Kingdom.

Investors from 'friendly' countries or non-strategic buyers (such as investment funds) are not immune from the increased risk of deal scrutiny under the NS&I Act. A report by United Kingdom's Foreign Affairs Committee highlighted that the risks associated with loss of strategic technologies to overseas actors extends to the United Kingdom's allies.70 This is evident in a number of recent acquisitions by 'non-hostile' investors, including Connect Bidco/Inmarsat (2019), Advent/Blackstone/Cobham (2019) and Nvidia/ARM (2020).

At the time of writing, it remains to be seen how the UK government will use its new tools under the NS&I Act. The system is intended to provide a predictable and simplified process for investors while leaving the government sufficient flexibility to stop transactions that could harm national security. However, an overly cautious enforcement approach will risk having a chilling effect on economic activity in the United Kingdom, particularly in high growth sectors such as technology and data. The onus is now on the government to strike an appropriate balance between safeguarding national security and minimising the burdens placed on businesses and investors.

Footnotes

1 Alex Potter is a partner and Kaidy Long is an associate at Freshfields Bruckhaus Deringer LLP. The authors would like to thank their colleagues Sarah Jensen, Iona Crawford, Megan Yeates, Dwayne Thompson and Helen Panteli for their contributions to this chapter.

2 See CityAM, 'How SoftBank won “national interest” backing from Theresa May for its “game-changing” Arm takeover' (7 November 2016), available at: https://www.cityam.com/softbank-won-national-interest-backing-theresa-may-its-game/.

3 See Department for Business, Energy & Industrial Strategy (BEIS), National Security and Investment Bill: Impact assessment (IA), 9 November 2020, p. 22. Note that the estimate was provided in relation to an earlier iteration of the NS&I Act, which included an additional 15 per cent notification threshold (pursuant to which the IA estimated around 5 per cent of notifications would be subject to in-depth assessment and 1 per cent requiring remedies).

5 EA02, Section 58.

6 EA02, Section 42(3).

7 In particular, communications, water, electricity, gas and energy, nuclear and aviation (regulated by Ofcom, Ofwat, Ofgem, the Office for Nuclear Regulation and the Civil Aviation Authority, respectively), as well as rail, payment systems and gambling (regulated by the Office of Rail and Road, Payment Systems Regulator and Gambling Commission, respectively).

8 Post-offer undertakings were introduced in 2015 and are governed by Rule 19.5 of the UK's City Code on Takeovers and Mergers (the Takeover Code).

9 In Melrose/GKN, the acquirer Melrose gave legally binding post-offer undertakings to the Takeover Panel regarding Melrose's headquarters, UK listing, board composition, GKN's trademarks and R&D spend, while also entering into separate deeds of undertakings with two government departments, BEIS and the Ministry of Defence ('MoD'), to allay their additional concerns; similarly, in Advent/Blackstone/Cobham, Advent gave post-offer undertakings to the Takeover Panel to maintain Cobham's UK headquarters, use of the registered company name and level of R&D spend in the UK, while entering into a separate deed of undertaking with the Secretary of State and giving formal national security undertakings under the EA02.

10 Proposals for a new UK national security screening regime were first put forward in October 2017 in a government Green Paper: BEIS, National security and infrastructure investment review: The government's review of the national security implications of foreign ownership and control (17 October 2017).

11 See BEIS, National Security and Investment Act 2021: Draft statement for the purposes of Section 3 (20 July 2021): 'The call-in power will not be used to interfere arbitrarily with investment. The UK has a proud record as one of the most open economies in the world and the Secretary of State's use of the call-in power will not change that. The UK remains firmly open to investment and the Government wants the UK to be the best place in the world to work and do business.'; and House of Commons Foreign Affairs Committee, Tenth Special Report of Session 2019–21, 'Striking the balance: Protecting national security through foreign investment legislation: Government Response to the Committee's Sixth Report' (HC 1263) (26 February 2021): '[The judicial review procedure under the NS&I Act] will ensure that the regime operates in practice as intended – solely concerned with national security, rather than wider public or economic interest.'

12 HM Government, Global Britain in a competitive age. The Integrated Review of Security, Defence, Development and Foreign Policy (CP 403) (16 March 2021).

13 At the time of writing, the government has published four pieces of guidance: BEIS, How the National Security and Investment Act could affect people or acquisitions outside the UK (20 July 2021); National Security and Investment Act: guidance for the higher education and research-intensive sectors (20 July 2021); Preparing for new rules about acquisitions which could harm the UK's national security (20 July 2021); and The National Security and Investment Act alongside regulatory requirements (20 July 2021).

14 See BEIS, The National Security and Investment Act alongside regulatory requirements (20 July 2021).

15 NS&I Act, Section 62(4).

16 NS&I Act, Section 7(2).

17 NS&I Act, Section 7(3).

18 NS&I Act, Sections 7(4) and 7(5).

19 NS&I Act, Section 7(6).

20 NS&I Act, Section 8.

21 NS&I Act, Section 6(6).

22 NS&I Act, Sections 6(5) and 6(6).

23 NS&I Act, Section 13(1).

24 NS&I Act, Sections 2(3).

25 NS&I Act, Section 8(8).

26 See BEIS, Preparing for new rules about acquisitions which could harm the UK's national security (20 July 2021): 'Any assessment by the government of an acquisition of material influence under the NSI Act will be considered in the light of the relevant section on material influence in the CMA guidance but applying the concept in the context of the NSI Act, so far as is appropriate.'; For the relevant CMA guidance, please refer to: CMA, Mergers: Guidance on the CMA's jurisdiction and procedure (23 December 2020), Paragraph 4.21 et seq.

27 NS&I Act, Section 9(1).

28 NS&I Act, Section 2(2).

29 NS&I Act, Section 2(1).

30 NS&I Act, Section 2(4).

31 NS&I Act, Section 62(4).

32 BEIS, National Security and Investment Act 2021: Draft statement for the purposes of Section 3 (20 July 2021): 'The Act intentionally does not set out the circumstances in which national security is, or may be, considered at risk. This reflects longstanding Government policy to ensure that national security powers are sufficiently flexible to protect the nation. Each qualifying acquisition will be assessed on a case-by-case basis…'

33 BEIS, National Security and Investment Act 2021: Draft statement for the purposes of section 3 (20 July 2021).

34 BEIS, National Security and Investment Act: guidance for the higher education and research-intensive sectors (20 July 2021).

35 BEIS, National Security and Investment Bill: Impact assessment (IA), 9 November 2020, Paragraph 44(i).

36 NS&I Act, Section 14(1).

37 NS&I Act, Section 41(1).

38 NS&I Act, Sections 39 and 41.

39 NS&I Act, Sections 15 and 16.

40 NS&I Act, Section 18(2).

41 N&SI Act, Sections 14(9) and 18(9).

42 NS&I Act, Sections 23(4) and 23(5).

43 NS&I Act, Sections 23(6) and 23(9).

44 NS&I Act, Section 24(4).

45 NS&I Act, Sections 14(6)(c) and 18(6)(c).

46 NS&I Act, Sections 41(3) and 41(4).

47 NS&I Act, Section 39(2).

48 NS&I Act, Sections 25(1) and 25(2).

49 See the Public Interest Merger Reference (Gardner Aerospace Holdings Ltd.) and Impcross Ltd) (Pre-emptive Action) Order 2019 (S.I. 2019/1490) and the Public Interest Merger Reference (Mettis Aerospace Ltd) (Pre-emptive Action) Order 2019 (S.I. 2019/1515), discussed further below.

50 See, for example, the undertakings given in Connect Bidco/Inmarsat (2019) and Advent/Blackstone/Cobham (2019), as published on the CMA's website.

51 NS&I Act, Section 41(2).

52 NS&I Act, Section 50.

53 NS&I Act, Section 49(4).

54 See footnote 3 above.

55 Of these 13 interventions, 10 resulted in formal remedies, one was abandoned without formal remedies being imposed, and one case is ongoing.

56 Advent/Cobham's recent takeover bid for UK-based defence manufacturer Ultra Electronics is also being scrutinised for potential national security issues (see Sky News, 'Kwarteng orders probe into £2.6bn Cobham takeover of defence group Ultra Electronics', 26 July 2021, available at: https://news.sky.com/story/kwarteng-orders-probe-into-2-6bn-cobham-takeover-of-defence-group-ultra-electronics-12364571).

57 In Connect Bidco/Inmarsat (2019), the SoS considered the investment structure and control rights and ultimately required undertakings that restricted information and management rights of the limited partners and co-investors pertaining to the target business. Similarly in Advent/Blackstone/Cobham (2019), the review involved an examination of the ownership structure and concerns that insufficient security controls within the new ownership structure could result in unauthorised access to sensitive defence and security data held by Cobham or carried on Cobham's systems.

58 In Gardner Aerospace/Northern Aerospace (2018).

59 See BEIS, Proposed acquisition of Mettis Aerospace Limited by Aerostar: CMA report (13 February 2020), Paragraph 2.10, and EA02 Undertakings given to the SoS by Gardner Aerospace Holdings Limited in relation to its anticipated acquisition of Impcross Limited, available at the CMA's website.

60 Not all transactions in these sectors face a full-scale national security review though: the subsequently announced AMD/Xilinx (2021) transaction – despite being brought to the Government's attention by the CMA – did not result in a formal national security review.

61 Examples include Rolls-Royce, BAE Systems and Qinetiq, in which the government retained a golden share following their sale to the public. More recently, the government has put in place special share arrangements to protect strategically important investments from unwanted takeovers, including Oneweb (see: https://hansard.parliament.uk/Lords/2020-07-08/debates/458886D4-0F12-4191-8472-7BD525D3BFE6/Oneweb) and the Hinkley C project (see: https://www.gov.uk/government/news/government-confirms-hinkley-point-c-project-following-new-agreement-in-principle-with-edf).

62 See, for example, the rights attached to the government's special share in Post Office Limited: BEIS, Post Office Limited: Shareholder Relationship Framework Document (25 March 2020).

63 Department for International Trade press release (27 April 2021), available at: https://www.gov.uk/government/news/new-expert-council-formed-to-maximise-uk-investment-offer.

64 See, for example, the strategic priorities laid out in the Government policy paper: HM Government, Global Britain in a competitive age, The Integrated Review of Security, Defence, Development and Foreign Policy (CP 403) (16 March 2021). In addition to scrutinising investments, the government has moved forward with a number of initiatives designed to address vulnerabilities in these areas, for example: (1) measures to enhance the security of digital supply chains and third party IT services (see Department for Digital, Culture, Media & Sport, Call for views on cyber security in supply chains and managed service providers (17 May 2021); (2) the proposed Telecommunications (Security) Bill, which aims to boost the security standards in UK telecommunications networks; and (3) the establishment of the Research Collaboration Advice Team (RCAT) within BEIS to offer researchers advice on how to protect their work from hostile activity, particularly in relation to cyber security, export controls and IP protection.

65 HM Treasury, Consultation on a Power to Block Listings on National Security Grounds (7 June 2021).

66 BBC, 'Newport Wafer Fab: Chip plant's purchase by Chinese company reviewed', 7 July 2021, available at: https://www.bbc.co.uk/news/uk-wales-politics-57755149.

67 Financial Times, 'UK takes 'active interest' in bid for Meggitt by US rival Parker Hannifin', 2 August 2021, available at: https://www.ft.com/content/bdf75f09-8746-4e5c-9301-21f923fe2757.

68 BEIS response to written parliamentary question, UIN HL1006, tabled on 10 June 2021, available at: https://questions-statements.parliament.uk/written-questions/detail/2021-06-10/HL1006#.

69 Financial Times, 'UK signals it may intervene in Cobham's pursuit of Ultra', 26 July 2021, available at: https://www.ft.com/content/63490521-2d2b-4f19-9d81-6c95c06d6f45.

70 House of Commons Foreign Affairs Committee, Sixth Report of Session 2019–21, 'Striking the balance: Protecting national security through foreign investment legislation' (HC 296) (19 January 2021), p. 7.

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