July 24, 2018 / 3:59 PM / 3 months ago

Breakingviews - UK seeks awkward balance between M&A and security

By George Hay and Neil Unmack

A worker adjusts British and China (R) national flags on display for a signing ceremony at the seventh UK-China Economic and Financial Dialogue "Roundtable on Public-Private Partnerships" at Diaoyutai State Guesthouse in Beijing, China September 21, 2015. REUTERS/Andy Wong/Pool/

LONDON (Reuters Breakingviews) - Britain has joined the security party. The UK government on Tuesday outlined how it proposes to screen foreign investment in domestic companies to better fend off security threats. While most of the proposed changes seem reasonable, they increase scope for political meddling.

The proposals build on tweaks made last month and aim to broaden UK lawmakers’ powers. They would allow the state to intervene in a wider range of situations than a takeover, including, for example, the acquisition of a 25 percent stake in a company. The government would also be able to block takeovers of smaller companies than is currently the case. The plans also specify the sectors that could fall under the purview of national security, such as advanced technologies or national infrastructure.

Given growing technological and political threats, this hardly positions the UK as an outlier. The United States, France and Australia are among those also toughening up their rules. In some ways the UK proposals are less stringent – disclosure of foreign investment will not be mandatory, unlike some countries. And the UK proposals at least name the core industries where the government will focus its attention. Canada’s foreign investment test ensures that any deal must be a “net benefit” to Canada, and considers a range of factors, including jobs and cultural relevance.

But greater oversight powers are only helpful if politicians don’t overuse them. Earlier this month the Guardian reported that private equity boss Jon Moulton criticised the UK government for citing national security grounds in the now-collapsed sale of Northern Aerospace to a Chinese buyer. Moulton reckoned there were no such concerns to answer.

The risk is of mission creep, either justified or malign. While the UK has specified which sectors will be covered by the rules, it could in practice look into a takeover in any sector without offering detailed explanations. The lack of an independent review body may also encourage government meddling. It’s hard to see how one of Britain’s key selling points after it leaves the European Union – its status as a reliable home for foreign capital – will emerge unscathed.

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