Acquisition of strategic assets
The SoS has up to five years to call in transactions for review (from when the ‘trigger event’ takes place) that have not been notified or six months from the time the SoS becomes aware of the transaction. The fact that Nexperia-Newport and BT-Altice are the first cases to be called in (on 25 and 26 May 2022 respectively) is noteworthy in itself. The two cases are relatively contrasting. Nexperia-Newport relates to the acquisition of a semiconductor plant in Wales by a Dutch subsidiary of a Chinese company, which plainly falls within the scope of the NSIA. BT-Altice concerns the increase of a minority shareholding that may give rise to material influence, perhaps less obviously, something within the scope of cases likely to be called in.
Nexperia’s acquisition of Newport Wafer Fab
Newport is a silicon and compound semiconductor foundry in Wales ‒ the UK’s largest microchip plant ‒ that was bought in July 2021 by Nexperia. The deal is under scrutiny not only because Newport is considered an important strategic asset but also because there is currently a global shortage of computer chips. Prior to the transaction, Nexperia already had a 14 per cent shareholding in Newport with two directors on the board. Curiously, the SoS did not intervene in the case by issuing a public interest intervention notice (PIIN) under the Enterprise Act 2002, as it had done in previous cases, but instead relied on the retrospective application of the NSIA to examine the transaction after it had closed.
The ramifications of having the possibility to review and unwind an acquisition, that has already been integrated, can be vast. The government has often been cautious about allowing foreign investors with state influence to invest in critical infrastructure within the UK to prevent loss of technology and access to sensitive information. In fact, the BEIS and the Competition and Markets Authority (CMA) have previously investigated transactions and imposed conditions for clearance or unwound them long after they have closed. It will be interesting to see how the outcome of this case influences the use of the call-in power in practice.
Altice-BT – the impact of minority shareholdings
On 26 May 2022, the SoS also called in for review the increased investment in BT by French telecommunications company, Altice (founded and controlled by French-Israeli billionaire Patrick Drahi). Notably, the call-in came just weeks before the lapse of takeover restrictions on Altice.
Altice had first acquired a stake of 12.1 per cent in BT in June 2021, which they increased to 18 per cent in December 2021 by acquiring a further 6 per cent – still well below the mandatory notification threshold of 25 per cent, or the statutory percentage required to block a “class of resolution governing the affairs of the entity”1. Nevertheless, the transaction may still have caused concern as, due to the increase, Altice could potentially have or be able to exercise material influence over the business affairs or strategic policy decisions of BT. In such cases, the ISU would generally look into the rights that can be accorded with the shareholding (e.g., special veto rights) to determine whether such rights go beyond simply protecting minority investments and allow the shareholder to have or exercise material influence. The ISU will also consider the distribution of the remaining shareholding to determine whether 18 per cent would make Altice the largest shareholder and whether Altice’s standing, status and expertise in the industry would allow it to have or exercise influence on other shareholders or on BT decisions.
In this situation, the ISU may also consider historical voting patterns and attendance at shareholders’ meetings, as this may indicate future conduct independently or together with other shareholders. Where there is low shareholder turnout, a minority shareholding can have a much greater impact. Voting patterns at BT Group AGMs show that on average shareholders with 70 per cent or less of the total voting rights exercise their rights to vote at meetings. Hence, Altice’s increase in shareholding from 12.1 to 18 per cent effectively equates to 26 per cent of the average turnout. This could potentially give Altice material influence over BT’s business policy and strategy as a result of its ability to have and/or exercise significant influence over the passage of shareholder resolutions (or even to block certain resolutions), as this is dependent on voting attendance and votes cast at the meetings.
Where there are national security or competition law concerns, the SoS and CMA may require the divestment or reduction of shareholding below specified thresholds (along with other conditions) to reduce material influence. It remains to be seen how the outcome of the government’s Altice-BT call-in and investigation will impact the application of material influence under the NSIA for future cases.