UK amendments to merger control on national security

The Department for Business, Energy & Industrial Strategy (BEIS) has published the government's response to its October 2017 Green Paper. This confirms the government’s decision to amend the jurisdictional thresholds in section 23 of the Enterprise Act 2002 for changes in control over enterprises that are active in three sectors: the development or production of items for military or military and civilian use; quantum technology; and computing hardware).  These changes are the first substantial changes to merger thresholds since the Enterprise Act 2002 came into force.

The turnover threshold applicable to such mergers will be reduced from £70 million to £1 million.

The share of supply test will be met where a merger involves a target with 25% or more share of supply of the relevant goods and services in the UK, as well as where the merger leads to an increase in the share of supply to, or above, this 25% threshold (i.e. the current share of supply test).

The CMA has published draft guidance on the changes to the jurisdictional thresholds.

It is not clear that a merger control jurisdictional test linked to turnover is the most appropriate measure in the relevant sectors.  Respondents to the consultation suggested that an assets test would make more sense.

The link to national security concerns isn’t that clear in the relevant sectors which are drafted broadly.  There is a risk that the changes will create more uncertainty for merging companies who may seek upfront clearance on both national security and competition grounds.  The reduction in the thresholds will affect transactions in all the three sectors and not just those raising national security issues.

It is likely that as a result of the changes a larger number of transactions in the relevant sectors will fall within the CMA’s merger control jurisdiction. 

The CMA invites comments on the draft guidance by 12 April 2018.