The UK government must tread a fine line between scaring off potential investors and protecting the UK's national security when formulating new takeover rules, according to partners.
M&A and infrastructure partners warn that the government faces a difficult balancing act as it formulates new the takeover rules that are intended to give the government more power to intervene in M&A deals.
Their warnings come after a government green paper published earlier this month by the Business and Energy Secretary Greg Clark set out plans to increase the government's ability to intervene in takeovers, particularly in areas which are deemed a national security risk, such as critical infrastructure, technology and defence.
Addleshaw Goddard corporate partner Simon Wood, who returned to the firm from a two-year stint at the Takeover Panel earlier this month, says: The tightrope they are trying to walk is ensuring that Britain remains open for business but also increasing the degree of protection around national security. That includes not just the defence sector but energy, communications and utilities, which are an important fabric of the UK's infrastructure.
Freshfields Bruckhaus Deringer infrastructure partner Richard Thexton broadly welcomes the proposals but calls for more guidance as to where the government should be notified of a deal on national security grounds, in order to avoid cases where the government intervenes in transactions at a late stage.
Under the voluntary regime, the government will have power after a non-notified deal is closed to go back and set it all aside, which from a seller's perspective would be a disaster. Clear guidance on which deals should be notified under the voluntary regime is therefore critical, he says.
Ashurst infrastructure partner Jason Radford meanwhile cautions that the threat of increased governmental oversight could spark a sell-off among UK infrastructure investors.
The ramifications for the market are difficult to assess at this stage, he says, it could notionally prompt a sell-off such that owners are looking to take advantage of good market conditions before the risk of increased government oversight becomes a reality.
The UK's upcoming exit from the European Union further increases the importance of avoiding protectionist measures, particularly as the present government's Brexit policy has been based around positioning the UK as what International Trade Secretary Liam Fox calls a proud champion in the cause of global free trade .
There is also increasing scepticism about the UK's future as a recipient of foreign direct investment (FDI) with 31% of investors responding to a 2017 EY survey saying they expect the UK's attractiveness as an FDI destination to decline, compared with just 16% in 2016.