Earlier this week the UK government issued a formal “public interest intervention” notice confirming that it intends to investigate the proposed $40bn acquisition of the UK-based semiconductor specialist ARM Limited (ARM) by a US competitor, Nvidia Corporation (Nvidia) (the Transaction).
The UK Competition and Markets Authority (CMA) will now assess the Transaction from a competition law perspective, whilst the UK government will separately explore any potential ‘national security’ concerns arising as a result of the deal.
This is the latest in a series of moves by the government which indicate its increased willingness to intervene in UK M&A, and indeed to signal its intention that it will act to protect ‘star’ UK companies from foreign takeover.
Indeed, the government has taken some significant legislative steps in the last 12 months to increase its influence in the M&A process:
- In July 2020, the government’s Enterprise Act 2002 (Share of Supply Test) (Amendment) reduced the conditions that must be met before it can intervene on ‘public interest grounds’ on deals where the target company is engaged in AI, cryptographic authentication technology and/or the manufacture of “advanced materials” (or the target supplies goods / services into such areas). These reforms were (quietly) brought in alongside wider powers enabling the government to block takeovers of companies involved in the manufacture of products used in the fight against the COVID-19 pandemic.
- This was closely followed by the introduction of the significant ‘National Security and Investment Bill’ which introduces a new regime to govern foreign direct investment into the UK, with a view to giving the Government the power to block proposed transactions in the interests of “national security (you can read our thoughts in this article).
In the case of ARM and Nvidia, the government has relied on the ‘quasi-judicial’ powers afforded to it under section 42 of the Enterprise Act 2002 to intervene (on the basis that completion of the Transaction creates ‘public interest concerns’, namely a ‘national security’ concern). It is not clear from the notice served earlier this week what the government’s actual ‘national security’ concerns are, though the prevalence of ARM-designed semiconductors in national defence technologies will invariably have played a part in its thinking.
Whatever the government’s actual concerns with the Transaction are, the very fact of its intervention fits with a clear trend (both in the UK and abroad) of an increased interest by national governments in finding ways to scrutinise foreign investment from a ‘public interest / national security’ angle.
This trend will only be exacerbated by the Covid-19 pandemic, with the result that investors will need to increasingly factor in the additional time and costs of dealing with the possibility of government scrutiny of or intervention in foreign-backed M&A.
If you have any questions around this subject, please contact our Corporate team.
