Changes to jurisdictional thresholds for national security mergers
A quick review of the new rules for mergers relating to specific sectors.
On 14 May 2018, the Enterprise Act 2002 (Turnover Test) (Amendment) Order 2018 (SI 2018/593) and Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2018 (SI 2018/578) were published. These amend the jurisdictional thresholds set out in section 23 of the Enterprise Act 2002 (the Act) for changes in control over businesses that are active in three sectors:
- the development or production of items for military or military and civilian use
- quantum technology (including communications, cryptography, computing, simulation, imaging, timing, navigation), and
- computer processing units and associated software/firmware.
This follows a Green Paper by the Department for Business, Energy & Industrial Strategy (BEIS) which suggested the changes back in October 2017.
The new legislation has reduced the turnover threshold for these mergers from £70 million to £1 million, and has added an additional share of supply test which will be met where a merger involves a target business with a share of 25% or more of supply of the relevant goods and services in the UK (even where the acquirer is not active is the supply of the same category of products or services). This will bolster the current threshold, where the merger requires an increase as a result of the transaction in existing share of supply to, or above, this 25% (where the acquirer and target must be active in the supply of the same category of products or services). A new section 23A has also been included to detail specifically which mergers fall within the new definition of a “relevant enterprise” for the purposes of these changes.
The Turnover Test Order will enter into force immediately after the commencement of the Share of Supply Test Order, which is stated to be 11 June 2018.
The purpose of these changes is to permit the government to intervene in order to address any national security-related issues raised by such deals. The amended thresholds will also allow the CMA to claim jurisdiction to review such transactions on competition grounds.
It is expected that a greater number of transactions in those sectors will come within the jurisdiction of the CMA. However, the CMA made it clear in its draft guidance on the changes that it does not consider that the three defined sectors should be treated differently from other sectors in terms of competition assessment.
