Mergers: Public Interest Cases

For a long period after the Second World War, merger control decisions in the UK took into account the 'public interest' in their consequences, including most obviously whether significant unemployment might result from a merger. But in 1984 Secretary of State Norman Tebbit announced what became known as The Tebbit Doctrine which was that most (not all) second stage references to what is now the Competition and Markets Authority (the CMA) would be made and decided primarily on competition grounds.   This doctrine was affirmed by later Secretaries of State and eventually incorporated in legislation. This web page provides information about those areas where the CMA can still be required to take wider interests into account.

There are four broad 'public interest' areas where the appropriate Secretary of State can issue an 'Intervention Notice' so that (s)he takes the appropriate decision rather than the CMA. They are:

Other areas may be added under secondary legislation.

See below for further information about each of the above areas, and a comment about 'National Champions'.

Financial Services

This area was added in late 2008 when the UK financial services industry appeared close to meltdown in the wake of the worldwide financial crisis and the collapse of the UK's Northern Rock bank. Halifax Bank of Scotland (HBOS) was also coming under pressure and, following discussions with Prime Minister Gordon Brown, its rival Lloyds TSB agreed to acquire HBOS and likely save it from collapse. As the financial services sector had not previously been designated as one of 'public interest', it seemed almost certain, however, that the merger would be prohibited on competition grounds. The SoS accordingly issued an Intervention Notice, the sector was designated, the OFT recommended to the SoS that the merger be referred to the CC for investigation - and likely blocked on competition grounds, the SoS decided not to refer the merger to the CC, and so the merger was allowed to stand. This intervention and decision was at the time regarded by most commentators as a perfectly sensible overriding of competition policy in view of the wider threat to the UK economy. A year or two later, however, some began to wonder whether it had been such a good idea after all.

Businesses with a role in public health emergencies

This area was added in June 2020 to deter takeovers of companies that are involved in combating, or mitigating the impacts of, public health emergencies such as the COVID-19 pandemic.

This power could most obviously be sued to block a foreign takeover of a company that was developing a potentially valuable vaccine - and to ensure that the vaccine was first made available to UK citizens.

National Security - and Infrastructure

There have been a small number of National Security Intervention Notices leading to a significant (phase 2) merger investigations.    The first was the 2019 reference of the acquisition of Cobham - a defence/aerospace company - by Advent, an American private equity firm.  In the event, the takeover was approved after Advent gave certain time-limited assurances.  It may be relevant that Cobham may have faced administration if it had not found a rescuer.

The second National Security Intervention Notice followed the late 2019 announcement that the relatively small Mettis Aerospace was to be acquired by a Chinese company.  The Chinese then abandoned the merger.

Then, in April 2020, there was considerable concern over an attempt to increase Chinese influence over Imagination Technologies.  But there was no need for a Public Interest Intervention - if indeed one would have been possible.  Here is a press report:

Chinese investors have abandoned an attempt to seize control of a British technology star after a furious backlash in Westminster.  A board meeting at Apple iPhone chip maker Imagination Technologies would have seen China Reform parachute in four directors yesterday – effectively giving it power over the business.  But it was cancelled after senior MPs called on ministers to intervene.   China Reform is the biggest investor in Cayman Islands-based Canyon Bridge, which bought Imagination for £550million in 2017 despite fears that the deal handed too much power to the Chinese.

The above cases are examples of growing concerns about foreign (and in particular Chinese) investment in UK infrastructure. The Conservatives therefore included the following commitment in their 2017 Manifesto:

We shall also take action to protect our critical national infrastructure. We will ensure that foreign ownership of companies controlling important infrastructure does not undermine British security or essential services. We have already strengthened ministerial scrutiny and control in respect of civil nuclear power and will take a similarly robust approach across a limited range of other sectors, such as telecoms, defence and energy.

The first legislative consequence was a dramatic reduction in the size of 'relevant' mergers that could be investigated by the CMA. The turnover test was reduced from £70 million to £1 million and the share of supply test is now met if the relevant enterprise has a 25% share of supply of goods or services in the UK before the merger. There is no need to show an incremental increase in the parties’ combined share of supply as a result of the transaction as there is under the standard thresholds.

Relevant enterprises are defined as enterprises engaged in specified activities in connection with:

There then followed a White Paper - the forerunner to legislation - in July 2018. Its summary said that:

Some commentators felt that this summary should not be taken at face value and that the true purpose of the new rules would be to deter quite harmless foreign takeovers. One pointed to the Business Secretary's threat to require an investigation of Melrose' hostile takeover of GKN on (non-existent) national security grounds, though better sense had quickly prevailed.

David Reader has published an excellent summary of, and commentary on, HMG's proposals.  You can read it here. A flavour of his advice can be gleaned from this brief extract:

To evaluate the Green Paper at face value is to blinker oneself from the key political context that lurks beneath the surface of the government’s proposals. Understanding this political context is crucial in order to gain a robust insight into how foreign investors are likely to interpret and respond to the proposals, in the event that they are enacted into law.

Interestingly, as of September 2017, the EU was planning similar legislation in the form of a 'screening framework' to address mounting concern about a surge of Chinese investment in the EU - often aimed at acquiring technology - and the lack of similar access for EU companies in China.

And President Trump blocked the 2018 takeover of microchip maker Qualcom by Singapore based Broadcom on the advice of CFIUS - the Committee on Foreign Investment in the US.  CFIUS argued that Broadcom would likely cut long term investment in favour of short term profits, thus dangerously damaging a key US industry.  There was however more than a hint of protectionism in the decision.

The proposed purchase of ARM by America's Nvidia was referred for investigation in early 2021.

The National Security and Investment Bill was published in November 2020 and the Act became law in early 2022.  It went further than the plans summarised above by requiring mandatory notification of proposed takeovers in 17 sectors including defence, energy and transport.  The government said that it expected to receive over 1000 notifications a year requiring c.100 detailed reviews but probably only a small number of prohibitions.

Media Plurality & Broadcasting Standards

This area includes TV, radio and newspaper mergers. The legislation is very complex but, in short, the Secretary of State cannot intervene in the decision whether to block a merger on competition grounds - this decision is still taken by the CMA - but (s)he can decide whether the merger is against the public interest because of it might reduce public access to a range of freely expressed views in the media, and/or to accurately presented news.

This legislation was introduced in response to the perceived threat associated with the growing power and influence of Rupert Murdoch's News Corporation empire which, in the UK, included four News International titles: The Times, The Sunday Times, The Sun and The News of the World, all of which were influential and/or mass circulation newspapers, as well as a significant stake in the Sky Television channels (BSkyB). Therefore, although the final decision was to be left to the Secretary of State for Business, the legislation provides that (s)he can, and presumably always would, seek advice from the determinedly independent Competition Commission, and would generally follow that advice.

A related problem was that senior News International executives were very close to a wide range of senior UK politicians. Incoming Prime Minister David Cameron was a close friend of News International's Rebecca Brooks, and, in 2010, even appointed ex-News of the World editor Andy Coulson as his Head of Communications, despite Mr Coulson having previously resigned as editor of The News of the World when it became clear that he had either authorised phone hacking, or had been incompetent in not realising that some of the paper's key scoops had depended upon such illegal hacking. This triggered an interesting example of senior civil servants failing in their duty to 'speak truth unto power'. The FT's Sue Cameron reported that 'Whitehall's finest have their heads well down as accusations fly over phone-hacking and the role of former newspaper editor and now Prime Minister's Press Secretary Andy Coulson. Did officials have misgivings about him moving to Downing Street? You bet! Did they tell new Prime Minister David Cameron? No! "You'd have to be suicidal to tell a new Prime Minister that the man he's worked with for three years is trouble.'

The media plurality legislation had been invoked in 2007 when the Labour Secretary of State (SoS) intervened following the purchase by BSkyB (39.1% owned by News Corporation) of a 17.9% stake in ITV, the UK's second largest 'free-to-air' broadcaster after the BBC. Following advice from the OFT (on the competition issues) and from Ofcom (on the media plurality issues) the merger was referred to the CMA's predecessor, the Competition Commission (the CC) who said that there was no significant media plurality issue, as ITV News' independence was assured in a number of ways. But the CC advised the SoS that a stake of even as low as 17.9% gave BSkyB a worrying amount of influence over the strategic direction of ITV, and recommended that BSkyB should be forced to sell its shares. The SoS accepted the CC's advice but BSkyB appealed to the Courts, eventually losing in the Court of Appeal in early 2010. It then began to sell its shares - at a considerable loss.

The legislation was invoked again in 2010 when News Corporation sought to acquire further shares in BSkyB so as to then own a majority stake in, and have full control over, the company. The competition aspects of this very large transaction fell to be considered at the European level in Brussels, where DG Competition in due course decided that the merger could go ahead. But Lib Dem politician and Business Secretary Vince Cable intervened on media plurality grounds and sought advice from Ofcom. As there was a clear media plurality issue, the clear expectation was that the matter would then be referred to the CC for advice. However, before the advice arrived, Mr Cable told two undercover journalists that he had "declared war on Mr Murdoch and I think we are going to win". It was thus clear that it would not be possible for him to make an unbiased decision, so responsibility for this and future media-related decisions was transferred to the Culture Secretary Jeremy Hunt in December 2010.

As noted above, Mr Cable's next step would almost certainly have been to refer the plurality issue for investigation by the Competition Commission, and for evidence-based advice on what concessions ('undertakings') might be offered by News International in order that the merger might be allowed to proceed. (The CC was very experienced in devising watertight undertakings - a far from easy task.) However, for reasons which are far from clear, and which presumably included a reluctance to annoy News Corporation, Conservative politician and Culture Secretary Jeremy Hunt made it clear that he was minded to allow the merger to proceed without first receiving advice from the CC, subject, however, to News Corporation offering satisfactory (i.e. satisfactory to him) undertakings in lieu of a CC reference (UiLs). He decided to approach the issue in this way even though Ofcom recommended that the matter be referred to the CC. News Corporation certainly wanted to avoid professional CC scrutiny, given their earlier experience (see above) and because the CC would insist on very watertight undertakings, although they claimed that their main reason was to avoid the delay that would result from a 6 month CC investigation. News Corporation accordingly offered UiLs direct to Mr Hunt. The UiLs, in essence, provided for Sky News to be spun off into a new company owned 39.1% by the News Corporation/Sky merged entity. But Mr Hunt had to offer a public consultation on the package, and consultees inevitably objected very strongly; there were 40,000 submissions including protests from BT, Channel 4 and the publishers of a number of major newspapers. As a result, or perhaps inevitably, the detail of the UiLs was found to contain a good number of devils. It was eventually reported, in early June 2011, that Mr Hunt had called in external lawyers to give him advice, following which a yet further period of consultation would be needed. The CC would almost certainly have given robust evidence-based and fully-consulted-upon advice before then, so it may well be that Mr Hunt had begun to rue the day he decided to try to short circuit due process.

If so, then Mr Hunt's regrets will certainly have increased as it came to light in 2011 that News International journalists and their associates had hacked into the private mobile phone voice mails of a wide range of victims of crime, victims of terrorism, celebrities and politicians. There were subsequent allegations of bribes being paid to police officers. These allegations in turn raised doubts about whether News Corporation - and/or its senior executives - were 'fit and proper persons' and so legally able to become owners of Sky Television. That question fell to be considered separately by Ofcom. In parallel with this, Andy Coulson was arrested (see above re his relationship with the Prime Minister) and News International announced the closure of the News of the World.

These scandals also caused some, including Ed Miliband, leader of the Labour Party, to suggest that it would now be clearly wrong for Mr Hunt to accept News Corporation's 'media plurality' assurances and allow the company to acquire BSkyB. The media plurality issue should therefore, even after all this delay, be referred to the CC. News Corporation itself then recognised that there was so much public and political opposition to the take-over of BSkyB that it would be better if the issue were kicked into the long grass and the CC allowed to examine the transaction. They accordingly withdrew their offer to spin off Sky News, thus triggering a July 2011 CC reference that should in truth have been made in the previous year. But then, only a few days later and under intense political pressure, they withdrew their bid altogether. It was left for experts to wonder whether both News Corporation might not have already completed the acquisition, subject to satisfactory and watertight undertakings, if they had been willing to face the CC who had, after all, cleared the media plurality aspects of their previous ITV transaction.

The issue attracted considerable further publicity in April 2012 when James Murdoch's evidence to the Leveson inquiry showed that News Corporation had almost constant and supportive communication with Jeremy Hunt's Special Adviser, Adam Smith, throughout the period when Mr Hunt was supposed to have been acting in a quasi judicial capacity. Mr Smith resigned and Mr Hunt suffered serious reputational damage. There were also calls for media plurality decisions to be left to the CMA in future, not taken by politicians.

But 21st Century Fox (in turn owned by the Murdochs) then attempted to acquire 100% of Sky - including Sky News. The CMA was not impressed:-

'Media plurality goes to the heart of the UK’s democratic process and as such is given protection in law. The CMA has provisionally found that if the deal went ahead, as currently proposed, it is likely to operate against the public interest. It would lead to the Murdoch Family Trust (MFT), which controls Fox and News Corporation (News Corp), increasing its control over Sky, so that it would have too much control over news providers in the UK across all media platforms (TV, Radio, Online and Newspapers), and therefore too much influence over public opinion and the political agenda. The MFT’s news outlets are watched, read or heard by nearly a third of the UK’s population, and have a combined share of the public’s news consumption that is significantly greater than all other news providers, except the BBC and ITN. Due to its control of News Corp, the Murdoch family already has significant influence over public opinion and full ownership of Sky by Fox would strengthen this even further. While there are a range of other news outlets serving UK audiences, the CMA has provisionally found that they would not be sufficient to moderate or mitigate the increased influence of the MFT if the deal went ahead.

... [Comments on these provisional findings] will be carefully considered before the CMA’s report is finalised and provided to the Secretary of State for Digital, Culture, Media and Sport. He will then make the final decision on the proposed deal.

The CMA did however suggest that certain remedies, including the sale of Sky News, might enable them to recommend that the transaction should be allowed to proceed.

It at first appeared that the Fox/Sky merger would not also be prohibited on broadcasting standards grounds, but doubts arose concerning 'fake news' and the behaviour of Fox News following the election of President Donald Trump in late 2016. In the end, however, the CMA eventually concluded that:

'... overall, Fox has a genuine commitment to broadcasting standards in the UK. It is an established broadcaster here, having held licences for over 20 years. '

The CMA took account of the policies and procedures Fox has in place to ensure broadcasting standards were met. It found that while there were issues with the compliance arrangements at Fox News when it was broadcasting its unedited simulcast international feed into the UK, this did not outweigh the detailed and effective policies and procedures that Fox has in place in relation to its UK focused channels. The CMA also provisionally found that Sky has a good record in this regard, consistently complying with broadcasting regulation. It also has comprehensive and effective policies and procedures in place to ensure broadcasting standards are met.

Its investigation took account of the fact that before 2012 there were serious shortcomings at the MFT controlled newspaper the News of the World, which had failed to comply with both press standards and the law. However, News Corp has subsequently put in place processes and procedures to address these. The CMA has provisionally found that, since then, its newspapers’ record of compliance with press standards does not raise concerns.

The investigation also considered the recent allegations of sexual harassment against Fox News employees in the United States. While these are serious, the CMA has provisionally found that these are not directly related to the attainment of broadcasting standards and do not call into question Fox’s or the MFT’s commitment to broadcasting standards in the UK.'

The legislation was used again in 2023/4 when entities based in the Unted Arab Emirates (UAE) showed an interest in acquring the Telegraph titles.  Ministers decided to refer the acquisition to the CMA at which point the bidders withdrew rather than face a lengthy inquiry.

National Champions & Other Significant Companies

It is important to note that, outside the above areas, neither the Government nor the CMA can block a takeover of a 'national champion' other than on competition grounds.

But Ministers do come under pressure to "do something" to protect jobs and investment (such as investment in R&D) when significant UK companies might be bought by large overseas "predators".   In practice, the purchasers are often willing to discuss their plans with the Government and others, and give commitments, but these can be worthless. Kraft, for instance, was heavily criticised for breaking a promise to keep open Cadbury's Somerdale factory in Somerset following its successful takeover of that British company. And it was far from clear that Pfizer could be kept to its promise to keep 20% of its worldwide R&D workforce in the UK, had it been able to buy AstraZeneca in 2014.

Business Secretary Vince Cable announced in July 2014 that the Government was minded to introduce legislation, policed by the Takeover Panel, to ensure that there was no 'wriggle room' for companies to abandon commitments given in advance of takeovers. Such policing would, however, be very difficult. How, for instance, would one ensure the quality of Pfizer's UK R&D presence, had it bought AstraZeneca? And what counts as R&D anyway? In the event, nothing much happened until the Takeover Panel itself issued a consultation document in September 2017 suggesting that "an offeror should be required to make specific statements of intention with regard to the offeree company’s research and development functions, the balance of the skills and functions of the offeree company’s employees and management, and the location of the offeree company’s headquarters and headquarters functions". But the Panel has no power to enforce the delivery of such 'intentions' and there is no sign that the government intends to give it such power. It all smacks of very weak political posturing.

See also the National Champions entry on the Interesting Issues webpage.

 

Martin Stanley

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