The New UK Merger Thresholds in Action

The acquisition by a chinese investor of a UK defence contractor attracted much attention as it represented the first use of the new merger thresholds which came in force in early June.

First Transaction under New Thresholds

On 17 June 2018, the Secretary of State for Business, Energy & Industrial Strategy (BEIS), in consultation with the Ministry of Defence, issued a Public Interest Intervention Notice (PIIN) (pursuant to s.42(2) of the Enterprise Act 2002) in relation to the anticipated acquisition by Gardner Aerospace Holdings Limited (Gardner) of Northern Aerospace Limited. Gardner is a wholly owned subsidiary of Shaanxi Ligeance Mineral Resources Co. Limited (SLMR), a Chinese investor.

The PIIN confirms the intervention is on national security grounds and gave the Competition and Markets Authority(CMA) until 13 July to investigate and report back to BEIS. This transaction attracted attention as it represented the first use of the new merger thresholds for national security mergers (New Thresholds) which came into force that same week.

The New Thresholds

By way of brief background, s.23 of the Enterprise Act 2002 grants jurisdiction to the CMA to review a “relevant merger situation” for competition concerns. A relevant merger situation is an acquisition or merger where either of the following thresholds is met:

  • the target business has turnover in the UK of more than £70m, or
  • the deal would result in the creation of or increase in a combined share of supply (or purchases) of a given category of products or services in the UK of 25% or more.

However, when a “relevant merger situation” raises issues of public interest, in addition to any competition review, the Secretary of State may intervene by issuing a PIIN. Although more categories can be added in the future, there are currently only four recognised areas of “public interest”: national security, newspapers, broadcasters and the financial stability of the UK.

The effect of the New Thresholds is to widen the scope of what constitutes a “relevant merger situation” in relation to transactions in certain sectors, giving the Secretary of State the ability to intervene in those deals on the grounds of national security. The three sectors relevant to the New Thresholds are:

  • 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.

The new legislation has: reduced the turnover threshold for these mergers from £70m to £1m ; and has added a new alternative share of supply test, which will be met where a merger involves a target business with a share of supply of 25% or more of a relevant category of goods or services in the UK (even where the acquirer is not active in the supply of the same category of goods or services and so there is no increase in that share of supply).

The practical impact of the New Thresholds is that a larger number of transactions will be reviewable by the CMA, and therefore potentially subject to political scrutiny through the PIIN regime. This in turn results in of uncertainty which is unwelcome for many (particularly non-UK) investors, potentially making the UK less attractive as a destination for investment. However, whilst increased oversight by the Secretary of State for BEIS for these mergers had always been the chief objective, the quick use of the New Thresholds is just coincidental.

The policy aim of the New Thresholds was to update the statutory framework in light of the changing nature of national security threats in the past decade. It was not intended that every single merger potentially falling within its scope should be reviewed by the Secretary of State. The Government estimates that five to 29 additional relevant mergers each year would be brought into scope as a result of the New Thresholds, but that only one to six of these relevant mergers would result in a PIIN.

Intervention is, moreover, not determinative of the outcome. Issuance of a PIIN simply means the Secretary of State will review any national security considerations arising from the merger, and such consideration may or may not take precedence over any competition concerns (or absence of such concerns) by the CMA. In the past 14 years, there have been seven PIINs on national security grounds, all of which were cleared following undertakings (usually aimed at safeguarding confidentiality and UK defence capability). Moreover, although the New Thresholds have also lowered the threshold for the CMA to review deals in these three sectors on competition law grounds, the CMA has made it clear in its guidance that it will approach its assessment of competition issues in the same way as it does in other sectors.


In light of the above, cause for concern may be exaggerated. The New Thresholds are certainly expected to result in an increase in national security-based scrutiny of relevant mergers in certain sectors in UK, as well as the accompanying competition review. However, this is likely to be limited. Although intervention by the Secretary of State represents an additional procedural hurdle, to date no deals have ultimately been blocked on national security grounds, with concerns rather having been addressed through undertakings.

The case of Gardner / Northern Aerospace is an excellent example. Following the intervention, the Parties told the CMA that the transaction had “lapsed” but that the merger had not been abandoned, and arrangements were on-going to progress it. Without written assurances from the parties that the transaction is formally abandoned, the CMA was entitled to continue the investigation under phase 1. On 19 July 2018, the Secretary of State made a finding of no adverse public interest. This was following an undertaking by Gardner and SLMR to the Ministry of Defence relating to the continued application of confidentiality and reporting arrangements for Gardner already in place for Gardner, which would also be applied to Northern Aerospace (if acquired). On 20 July 2018, the CMA published its decision finding that there were no adverse competition concerns. In other words, from intervention to clearance there was just over a month, or 24 working days.

Although the transaction has not yet closed (and there is no information as to whether it will), it should be clear from this case that, the greater focus on national security and increased potential for intervention are not necessarily indicative of a more protectionist regime or, indeed, of longer timetables or increased chances of adverse findings.

Please see our earlier article for more background on the new thresholds for national security mergers.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.