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Summary
- Legislation to check foreign firms eyeing a purchase of stressed-out medical care and technology businesses in the UK
- Government law being suitably modified to avoid any harms to the national interest
- Eventually the law will be given teeth to protect domestic firms from all the sectors
- Merger and acquisition deals with Chinese counterparts especially under the Government scanner
The UK Government has come out with new legislation that will safeguard key health care businesses from foreign acquisitions.
The critical healthcare firms in the pharma and medical technology domains, who are struggling to weather the economic impact of the coronavirus pandemic, will especially benefit from this move.
Alok Sharma, Secretary of State has remarked that the Government is prepared to protect its national security, and this new legislation will not let any foreign firm take advantage of a struggling business which is looking out for a suitable M&A deal in Britain. The law has been amended so that opportunistic investors are unable to take over critical public health firms.
The existing law already allows the Government to investigate a foreign takeover on national security and financial stability reasons, and can block a takeover or ask the buyer for detail of its plan. The UK Government has also imposed conditions on buyers, earlier, to protect its national interest.
What is the legal amendment?
The UK Enterprise Act 2002 has been tweaked to allow the government to take legal action against a foreign firm that is targeting acquiring a domestic company, which is critical to pandemic response in the UK.
An example of such firms could be businesses producing personal protective equipment or manufacturing corona diagnosis test kits.
The Act is also being amended to bring companies in the technology sector, that will include advanced materials, AI and cryptographic authentication technology under its purview, which was barred till now since the threshold turnover size was large enough to exclude small tech firms in say artificial intelligence or medical encryption domains. At present, a domestic firm should have a minimum turnover of £1 million, if it wants the government to intervene and protect its interests.
The amendment ensures that foreign companies can’t avoid legal scrutiny in buyout cases where national security is involved. This will protect the United Kingdom’s technological base, according to Boris Johnson, the country’s Prime Minister. The UK technology companies are no longer that easy to buy for foreign firms with predatory motives, he added.
The takeover of Imagination Technologies Group Plc by a Chinese company
The UK Government is already investigating one such case, where a Chinese equity fund named Canyon Bridge Partners took over Imagination Technologies Group Plc, a British company that designs graphic chips, way back in November 2017. Imagination Technologies was delisted from the London Stock Exchange after this buyout. It is pertinent to note that ambitious various Chinese firms have been prying over British tech firms and this has raised a series of political rows over and concern over their alleged expansion drive in the recent past.
Canyon Bridge Partners recently tried to change the directors of the acquired firm, in April this year. Sir Hossein Yassaie, former CEO of Imaginative Technologies fears that this move is directed towards changing the ownership and control of the firm, and soon the company operations might be moved to China. Many MPs have also raised an alarm saying that technology is being moved from the UK to China and the UK Government is already late is taking remedial action. They fear that after taking charge of the company’s board, China’s next move will be to take Imagination Technologies’ IP (Intellectual Property) rights to its homeland as well.
Three members of the company management have already put in their papers, citing ‘uncertainty about the company’s future’ as the reason for this move.
The Oxford Nanopore Case
In addition, these legal changes have been announced at a time when Tencent, the Chinese technology firm is planning to buy a stake in Oxford Nanopore, a British biotech firm that develops testing kits for the coronavirus flu.
Asset management firm Invesco currently owns an 11 percent stake in Oxford Nanopore, which might be taken over partially or completely by Tencent. The UK Government had recently given Nanopore a contract worth $56 million to develop these diagnostics kits. This deal also might come under the legal scanner soon.
Britain is not open to exploitation: Sharma
Emphasizing on the need for the move, Alok Sharma quoted that while his Government is open to foreign investment, it is completely against the idea of getting exploited at any cost. Many other European countries like Germany and France have imposed similar stringent laws to protect their domestic companies from hostile takeovers, during the recent past.
During March this year, the European Union had issued similar guidelines to save struggling firms of its member nations and had requested their Governments to buy a stake in such companies, as a last resort measure, to avoid any possibility of them being bought over by foreigners.
While the initial Enterprise Act 2002 amendment will cover firms that are providing critical health services in corona times, it will eventually be applicable to firms under all sectors and services, to protect Britain’s national interest.
With this move, while the new and small companies come under government scanner if they decide to go in for an acquisition, and it might appear on the first glance as if their freedom is being restricted, but at the same time they are also being ably protected by the Government from any predatory move by a foreign firm.
The amendment will protect the British firms in the short-term, and for the long-term Sharma is planning to come out with a suitable National Security and Investment Bill soon to further strengthen the rights of domestic firms during the entire merger and acquisition process, according to media sources.
We are living in the times where economies around the world are embracing the policies of globalization and liberalization. Nations are walking on a thin rope when they try to protect national interests and impose restrictive laws that slow down the process of mergers and acquisitions through close scrutiny, without jeopardizing the process of growth. While some may argue that the UK is already late in protecting its tech firms from hostile takeovers by the Chinese, it’s experience is not any different from that of other nations severely hit by the Covid-19 pandemic, and the new amendments to the UK Enterprise Act 2002 are a welcome move and shall surely go a long way in protecting the interests of British firms in times to come.
