The UK Government has made a rare intervention in the proposed acquisition of aerospace and defence company Cobham plc by U.S. private equity firm Advent International, on national security grounds.
Cobham has a number of contracts with the Ministry of Defence (the ‘MOD’) and the British military for a range of services, including specialist air-to-air refuelling, electronic warfare systems and training in relation to software used in combat aircraft.
Legal basis for Government intervention
Article 21(4) of the EU Merger Regulation1 enables Member States to protect, inter alia, national security interests in relation to transactions that have an EU dimension and which, therefore, fall within the European Commission’s exclusive jurisdiction.
Under section 67 of the Enterprise Act 2002 (the ‘Enterprise Act’), the Secretary of State may exercise the power conferred by article 21(4) and issue a European Intervention Notice (the ‘Notice’). This Notice enables the Government to investigate the public security aspects of a proposed deal even where there may not be a competition issue.
In June 2018, the Government introduced the first of two stages relating to the implementation of the national security regime to review mergers and acquisitions, especially those involving foreign direct investment. This resulted in the amending of merger thresholds, which allowed the Government to intervene more easily in transactions within sectors identified as raising national security concerns. These sectors were UK military, UK dual-use, radioactive source and EU dual-use, and examples of businesses falling within these sectors include those which develop military and dual-use technology, quantum technology and computing hardware.
The Government may only justify intervention on national security grounds under the following conditions:
- two or more enterprises cease or will cease to be distinct entities as a result of being brought under common ownership or control; and either
- the target’s existing share of supply of goods or services in the UK must be at least 25 per cent, where share of supply includes both purchase and sale;2 or
- the UK turnover of the target business must be greater than £1 million.3