The review by Lord Heseltine, “No stone left unturned in pursuit of growth”, contains amongst its 89 recommendations the suggestion that the UK Government should make use of its powers under the Enterprise Act 2002 to intervene in mergers raising “public interest considerations”. The Heseltine Review is here (pdf) and the accompanying BIS press release is here. From the Review:
“The powers [in section 42 of the Enterprise Act] have been used just once since the Act was passed. That was to introduce a public interest consideration allowing ministers to intervene in mergers and acquisitions affecting the stability of the financial system. In fact it was put in place, not to block a merger, but to allow Lloyds TSB’s takeover of HBOS in 2008 to proceed when it might otherwise have fallen foul of the competition authorities.
Government should show a readiness to use these powers when vital national interests are at stake.
These instances, of course, will be rare and exceptional. What will be far more common are foreign takeovers where UK plc could get far more from the deal than it currently does. Successive UK governments have been too timid in engaging with potential investors in our key sectors to ensure we get the best possible investment in the UK’s long term capabilities. We already have many foreign investors adding significant value, building UK R&D capability, developing our domestic supply chains, and developing the skills base.
The Government needs to exert its influence to ensure that more investors make similar commitments, and where necessary make them binding.
Implementing the recommendations I make [in Chapter 3] will radically strengthen the links between government and industry. They will involve the establishment of joint industry councils, strengthened sector teams, a streamlined dialogue with trade associations, civil servants with genuine knowledge of sectors and better links with strategically important companies. All this will put government in a much better position to identify strategically important takeovers, and to engage assertively and knowledgeably with foreign investors to secure the commitments that will strengthen our industrial base.
Signalling a greater willingness to use the Enterprise Act powers will help to underpin the Government’s negotiating efforts. We would hope the Government never had to use the powers. Their very existence may be enough.
It will be claimed by some that to threaten to use our legislative powers in this way would be to provoke indignation and protest, and would harm the flow of investment to the UK. I reject this. From my knowledge, all leading countries have powers to protect their interests and are prepared to use them, and would expect others to do likewise. Australia, for example, has a review board which assesses proposed foreign takeovers to ensure that they are in the national interest. France assesses mergers against a general interest test which includes consideration of the competitiveness of French companies on the international stage.
Even that bastion of free markets, the US, allows for scrutiny of foreign investment where there are national security concerns93, and prohibits foreign ownership of more sensitive sectors of the economy outright. Dubai Ports World, for example, felt compelled to divest itself of P&O’s US ports operations when it took over P&O following intense pressure. Rupert Murdoch, of course, had to become a US citizen to satisfy the legal requirement that only US citizens were permitted to own US television stations.
I do not understand why it is felt that there will be damaging complaints from equivalent economies because all of them have and use such powers.
Recommendation 73: The Government should take a greater interest in foreign acquisitions from the perspective of the UK’s industrial strategy priorities, using an enhanced sector knowledge and expertise. Government should do far more to engage with potential foreign investors in our core sectors to secure commitments to developing the UK research, skills and supply base, and in exceptional cases to discourage unwanted investments. We should underpin this by signalling a greater readiness to use existing powers in the Enterprise Act 2002 to allow ministers to consider takeovers and mergers to ensure our long term industrial capabilities are given proper consideration.”
The Government will now consider the Review’s recommendations.