Commentary on Political Economy

Monday, 22 June 2020


U.K. Bolsters Foreign Takeover Defences as Pandemic Drives Protectionist Moves

Moves are to guard against unwanted acquisitions of domestic companies developing coronavirus vaccines or manufacturing personal protective equipment

Britain is taking steps to limit foreign takeovers of strategically important companies, such as those making personal protective equipment for use in a pandemic.

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The U.K. is strengthening its takeover defenses, joining a wave of protectionism that is sweeping Europe as countries try to shield companies deemed vulnerable to unwanted approaches by foreign acquirers in the wake of pandemic lockdowns.
The British moves to strengthen to government’s power to block foreign takeovers are focused on companies involved in combating public-health threats such as Covid-19, or developing technology key to guarding national security.
The proposals follow similar actions by other European countries including Germany, Italy and Spain as the pandemic-induced fallout raises alarm bells across Europe that slumping share prices of strategically important companies could leave them exposed to foreign takeovers.
The European Union has also signaled its own clampdown, announcing plans last week to tighten its defenses against subsidized foreign companies, as part of its effort to assert “strategic autonomy” from China and the U.S., while defending its economic interests.
Britain’s proposed new powers, set for approval as soon as Monday, will enable the government to block a foreign takeover of any domestic business directly involved in responding to a pandemic such as developing a vaccine or manufacturing personal protective equipment.
“The economic disruption caused by the pandemic may mean that some businesses with critical capabilities are more susceptible to takeovers —either from outwardly hostile approaches, or financially distressed companies being sold to malicious parties,” the government said.
Governments are under pressure to find a coronavirus vaccine both to protect the health of their population and to guard against having to shut down their economies again. Britain’s new rules are meant to help it achieve that goal by guarding against a foreign interloper gaining ownership of a promising vaccine for its own population, at the expense of people in the U.K.
That pressure was underscored by the German government earlier this month investing €300 million ($336.7 million) to take a 23% stake in CureVac AG, a homegrown biopharmaceutical company that is working on a coronavirus vaccine.
In addition, the U.K. government is lowering the threshold to review deals for businesses across a broader set of sectors. Currently, that minimum test applies to potential foreign takeovers of domestic companies developing technologies such as computing hardware, and products for military applications. That group will now include artificial intelligence, cryptographic authentication technology and advanced materials.
These moves are an extension of a general rise in protectionism in Europe and the U.S. in recent years. Governments are trying to find a balance between attracting foreign investment and guarding against foreign companies and governments acquiring key domestic assets that could be used against them militarily or economically.
Still, the U.K.’s latest effort comes with risks.
“These rules will create more uncertainty for foreign buyers, especially those from certain ‘hostile’ jurisdictions,” said Marc Israel, a London-based lawyer at White & Case LLP. “And the flip-side is that from a seller perspective it limits the options for a potential exit if many non-Western buyers are going to face additional hurdles.”

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