Davis Polk Discusses Greater Risk of Scrutiny for More UK Deals

The UK’s Competition and Markets Authority (CMA) has announced proposals to tighten its jurisdiction over mergers in the military, quantum technology and computing hardware industries. The changes, which are subject to a consultation period through April 12, 2018, would lower the thresholds at which the CMA and the Secretary of State can exercise their powers of review and intervention.

Specifically, the CMA is proposing to:

  • reduce the ‘target turnover threshold’ from £70 million to £1 million, and
  • broaden the ‘share of supply threshold’ to catch targets with 25% or more share of supply in the UK, even if the acquirer has no presence in the sector.

The stated purpose of these changes is to provide the Secretary of State with greater oversight of deals which may raise national security concerns in the UK. The proposal is consistent with recent regulatory expansionist policies from other European authorities, including most recently the 2017 amendment of the German Foreign Trade and Payments Ordinance to increase scrutiny of foreign investments with “public order and security” profiles. (More broadly, see also the commentary from EU President Juncker’s 2017 State of the Union address and Davis Polk’s recent memo.)

In addition to broadening the Secretary of State’s reach, the lowered thresholds will result in a greater number of transactions coming within the jurisdiction of the CMA’s competition assessment. It remains to be seen however how the CMA will exercise these powers should they be approved, given the anticipated increase in its post-Brexit caseload.

This post comes to us from Davis Polk & Wardwell. It was originally published on March 21, 2018, in their Client Memorandum, “More Transactions at Risk of Regulatory Scrutiny in the UK,” available here.