M&A Headwinds - March 2019

Highlighted below are some key areas of recent development which could impact on M&A transactions and strategy

New Pensions Regulator powers will affect deal structuring and timetable

New enforcement powers for the Pensions Regulator are relevant to any corporate transaction that could impact on a UK DB pension plan.

Strict new Pensions Regulator powers will apply in respect of any transaction potentially impacting upon a UK defined benefit pension plan (DB plan).

  • It may be necessary to involve the trustees at the very outset of the transaction - even at the heads of terms stage.

  • Additional costs will be triggered in connection with the new rules, including for the DB plan’s trustees - sellers should consider the extent to which prospective buyers should be made responsible.

  • Auction sales will also require careful consideration - for example, whether bidders should be required to pre-agree a mitigation package for the DB plan.

Significant sanctions will accompany the new powers (to be introduced as soon as UK Parliamentary time allows):

  • a new criminal offence, punishable by up to 7 years’ imprisonment and unlimited fines, to deter “wilful or grossly reckless behaviour” in relation to UK DB plans

  • new fines of up to £1m, which can be levied against company directors and shareholders personally, to punish serious breaches of UK pensions regulation, and

  • enhanced powers to force members of the wider corporate group, and shareholders, to contribute to DB plans.

The fines are proposed to have retrospective effect and so are already relevant to transactions currently under way or in planning.

No-deal Brexit may require extra merger clearance from UK competition regulator

In a no-deal Brexit, transactions which are currently under review by the European Commission may also need to be cleared by the UK competition regulator.

The UK Competition & Markets Authority (CMA) is proposing that, if there is no deal, cases presently under European Commission review will also need to be cleared by the CMA, if the UK law jurisdictional thresholds are met. So, there will be parallel merger clearance procedures in the UK and EU.

The notification of proposed mergers remains voluntary in the UK. However, the CMA has warned that it may investigate transactions which raise UK competition concerns where the parties fail to take a cautious approach by also notifying with the CMA alongside the European Commission.

In such parallel cases, the CMA has suggested exchanging information with the European Commission for efficiency. This may require approval from the relevant companies, however.

The CMA’s draft proposals can be found here and the CMA has invited interested parties to provide feedback.

Real estate: Non-resident investors in the UK - all change?

Changes to UK taxation may impact significantly on the UK tax liability of non-residents holding UK real estate.

From 01 April 2019, non-residents will be within the scope of UK tax on gains from direct, and certain indirect, disposals of UK real estate.

The UK Government also plans to bring non-resident companies within the scope of corporation tax on their UK property related income and gains with effect from April 2020.

There are also proposals to introduce, by 2021, a public register of beneficial owners of overseas entities that own land in the UK and:

  • an overseas entity would be unable to obtain legal title to registered land in the UK unless it complied with the new registration regime, and
  • where an overseas entity already owned qualifying property in the UK, it would be restricted from disposing of that property unless it was registered.

See here and here for more information.

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.