Greater government powers over takeover deals could be used for political purposes, critics warn

Leading investors, trade bodies, lawyers and banks have criticised proposals to give the government greater powers to intervene in mergers and acquisitions (M&A), raising concerns that new rules could be exploited for political purposes.

The proposals would give officials greater scope to scrutinise deals on security grounds. A senior minister could call-in any merger, acquisition or investment if they had a “reasonable suspicion” it may give rise to national security concerns.

Government officials are currently conducting a charm offensive, visiting financial sector stakeholders to reassure them and gauge their criticisms.

Finance groups say the reforms are too broad and fear they could be exploited for political reasons, in consultation responses seen by City PM

Law firm Herbert Smith Freehills said the reforms “gambled” the UK's attractiveness for foreign investment.

Senior partner James Palmer said: “We are very concerned that the government’s proposals will introduce an unprecedented degree of political interference in ownership of UK and foreign businesses dealing with the UK, whether or not connected to real national security risks.”

The Department for Business, Energy and Industrial Strategy, which closed its 12-week consultation last month, stood by the proposals.

A spokesperson said: “We remain open for business and welcome foreign investment. These reforms are aimed solely at ensuring the government’s ability to protect national security.”

One of Britain's biggest pension funds, the Universities Superannuation Scheme (USS), raised concerns the powers could be abused by future governments.

It said: “We are concerned that the interpretation and implementation of this call-in regime could evolve with the political mood of the nation and corresponding change of government and therefore lead to uncertainty.”

The Investment Association, the Association for Financial Markets in Europe and the Institute of Chartered Accountants in England and Wales, added to warnings that the powers could be exploited for political purposes.

The British Venture Capital Association echoed those sentiments and also feared that the “reasonable suspicion” threshold for government intervention was a low bar and unlikely to be challenged in the courts.

One M&A banker told City PM: "No one knows until the rules are implemented how broad the brush will be… the concern is there will be political influence and on big deals it will all get a bit GKN-Melrose."

Melrose's hostile takeover of GKN attracted intense criticism in Westminster earlier this year, with some MPs calling on the government to give itself greater powers to block deals.

While the Institute of Directors did not formally respond to the recent consultation, head of corporate governance Roger Barker told City PM it was critical decisions were made “at arms-length from ministers” and in a non-political manner.

The former head of the Office for Fair Trading John Fingleton also slammed the proposals ahead of the consultation deadline last month.

He said: “They can call in whatever cases they want, it gives them very wide power…and it's not just mergers, it could be an investment, it could be a loan, it could be a property purchase, all of those things they can examine if they want.”