LawFlash

UK CMA Publishes Updated Merger Guidance Following Commencement of NSI Act

January 14, 2022

The UK Competition and Markets Authority updated its guidance on the merger control regime in the United Kingdom on 4 January 2022—the same day the National Security and Investment Act 2021 came into effect. The updated merger guidance clarifies that the new national security regime is separate to UK merger control and that transactions may be subject to both regimes.

In addition, the updated merger guidance notes that where transactions are subject to a review under both regimes, the Competition and Markets Authority (CMA, which is responsible for merger control) and the Investment Security Unit (ISU, which is responsible for national security reviews), may coordinate and share information.

THE NSI ACT

The National Security and Investment Act 2021 (NSI Act) came into force on 4 January 2022 and introduces for the first time in the United Kingdom a standalone screening regime for the review of foreign and UK transactions that may give rise to national security concerns. The NSI Act significantly expands the UK government’s ability to review transactions on national security grounds and stipulates for mandatory, suspensory filings with respect to certain transactions in 17 key sectors as well as voluntary filings for transactions not falling within the mandatory filing regime. Under the NSI Act, the UK government also has the power to call in transactions, including completed transactions, for review in certain circumstances. Furthermore, the NSI Act applies retrospectively to certain transactions that closed between 12 November 2020 and 3 January 2022. For detailed information on the NSI Act, view our previous publications.[1]

NEW NATIONAL SECURITY REGIME IS SEPARATE FROM EXISTING MERGER CONTROL REGIME

The updated merger guidance clarifies that the new national security regime under the NSI Act is separate from the existing merger control regime under the Enterprise Act 2002 (EA), and that a merger may qualify for review under both regimes. Where that is the case, the CMA encourages parties to speak to it at an early stage regarding timing and process of the review.

The updated merger guidance sets out that where a final order is in force or a final notification that no further action is to be taken under the NSI Act, the secretary of state can issue a direction to the CMA under the NSI Act to do or not do anything under the UK merger control regime, provided that the secretary of state reasonably considers that the direction is necessary and proportionate for the purpose of preventing, remedying, or mitigating a risk to national security. Prior to issuing any direction, the UK government will consult with the CMA (and with other parties where appropriate).

SECRETARY OF STATE CANNOT INTERVENE IN MERGER SITUATION ON NATIONAL SECURITY GROUNDS

Going forward, the secretary of state may only intervene in a merger situation on certain public interest considerations: namely, plurality and other considerations relating to newspapers and other media; maintaining the stability of the UK financial system; and maintaining the capability to combat and mitigate the effects of public health emergencies. The NSI Act removed national security from the list of public interest considerations and, accordingly, the updated merger guidance notes that from 4 January 2022 the secretary of state is no longer able to intervene in the merger control process on national security grounds. Instead, all national security issues will be addressed under the new national security regime pursuant to the NSI Act.

However, the secretary of state will still be able to intervene in a CMA merger review on national security grounds where the relevant acquisition completed before 4 January 2022.  Where the secretary of state had intervened on national security grounds in an ongoing merger case prior to 4 January 2022, that review process will continue.

SPECIAL MERGER CONTROL THRESHOLDS NO LONGER APPLY

Special merger control jurisdictional thresholds had applied previously where the enterprise acquired was active in certain specified areas, including artificial intelligence and the development or production of items for military or military and civilian use (which are currently captured by the NSI Act). Pursuant to the NSI Act, these special merger control thresholds no longer apply. Acquisitions in these sectors are therefore subject to the ordinary UK voluntary merger control filing thresholds, namely if: (1) the target’s UK turnover in the preceding financial year exceeds GBP 70 million; or (2) the transaction leads to the creation or enhancement of a 25% or more share of supply in the United Kingdom or a substantial part of it.

CMA MAY SHARE CONFIDENTIAL INFORMATION WITH SECRETARY OF STATE AND ISU

The ISU is a dedicated unit within the UK Department for Business, Energy & Industrial Strategy, established to review submissions made under the NSI Act. The updated merger guidance notes that where a merger is under review under both the merger control regime and the national security regime, the CMA may share confidential information with the secretary of state and the ISU to facilitate coordination of the parallel reviews.

In order to share confidential information with the secretary of state or the ISU, the CMA may seek a confidentiality waiver from the merging parties. However, under the NSI Act, if a public body makes a disclosure to facilitate the secretary of state fulfilling his or her functions under the NSI Act, such a disclosure from a public authority (such as the CMA) to the secretary of state will not amount to a breach of confidentiality.

KEY TAKEAWAYS

Parties planning transactions that are likely to trigger a filing under both regimes would be advised to consider at an early stage:

  • Whether any potential UK national security issues may arise under the NSI Act.
  • Whether to make a voluntary merger control notification to the CMA if the transaction is likely to give rise to competition law concerns.
  • How best to coordinate clearance under the NSI Act with other required foreign direct investment and merger control processes (potentially including UK merger control clearance).
  • The likely impact on deal structure and timing of a filing requirement under the NSI Act and, if relevant, the EA.
  • Whether to include risk mitigation clauses and conditionality, relative to the NSI Act/EA, in their transaction documentation.

The first formal decisions made under the NSI Act will likely significantly influence how the new regime is implemented in the future. Parties—including acquisition finance lenders—should therefore pay close attention to these early developments and would be well advised to take into account the implications of the NSI Act on current and future transactions.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

London
Joanna Christoforou
Omar Shah
Savas Manoussakis

Boston
Carl Valenstein

Brussels
Christina Renner
Izzet Sinan

Frankfurt
Michael Masling

Washington, DC
Giovanna Cinelli
Kenneth Nunnenkamp
Ulises Pin
Heather C. Sears
Christian Kozlowski
Katelyn Hilferty
Charles Rush
Roland Backhaus



[1] Foreign Direct Investments in the United Kingdom: UK National Security and Investment Act Receives Royal Assent; The UK’s Proposed New National Security Investment Screening Regime: Standalone, Mandatory, and Broad in Scope; UK National Security and Investment Act Comes into Force on 4 January 2022; Inside the New UK National Security Guidance for Deals