Whether it’s football or chips, let’s be upfront about our national interests

It was a busy day for Oliver Dowden. 

The culture secretary dished up a dire warning to some of the world’s top football clubs (by brand, if not performance). The government would use every line of attack to stop a new European super league, including windfall taxes, visa restrictions, travel bans or German-style fan ownership models.

Competition law got a nod (and there’s no doubt that the closed shop model rings antitrust alarm bells). But no one was really pretending that was behind the government response. Football is as populist as it gets. The government isn’t about to stand by and let the beautiful vote-winner get besmirched by private business interests and their pursuit of money.

Dowden had already been doing battle for the good of the nation, in the somewhat lower profile area of global semiconductors. This time billed as digital secretary, he on Monday demanded a review of Arm’s $40bn sale to US chipmaker Nvidia.

Again, this is a deal with undoubted competition concerns. The Competition and Markets Authority had already launched a preliminary investigation into whether Arm’s chip designs, which are used in most smartphones, should be allowed to be owned by one of the world’s biggest chipmakers, a prospect that has got Nvidia’s rivals up in, well, arms.

But the action is now elsewhere. The deal has been called in on national security grounds, a tool that has been used only 12 times since 2002. The CMA will do its usual competition analysis, while also gathering views on security concerns. But the secretary of state will then decide whether to clear the deal (with possible conditions) or refer it for further scrutiny.

READ  New York Fed among six banks voting in July for no change in discount rate

This seems to owe more to a broader idea of the national interest than security concerns, at least as understood in the traditional way. Other recent call-ins, such as the acquisition of defence company Cobham by a US private equity firm and the sale of Northern Aerospace to Gardner Aerospace (a subsidiary of Shaanxi Ligeance Mineral Resources) raised much clearer flags, and were ultimately allowed.

Arm is a — if not the — leading light of the UK technology sector. But its sale in 2016 to Japan’s SoftBank wasn’t examined on security grounds. In fact, that deal was welcomed as evidence that post-Brexit Britain was, to use the politicians’ favourite toe-curling phrase, “open for business”.

The mood has changed. Technology has certainly become more central to the national interest, however defined, and governments around the world have taken a more protectionist stance against takeovers. The UK government is set for greatly expanded powers to scrutinise deals on security grounds, under the national security and investment bill, particularly in areas such as artificial intelligence and cyber security.

As a result, citing national security concerns has become part of the M&A defence playbook. Look at the fuss over GKN’s 2018 sale to Melrose, the sale of a British engineering group to another British company with a better management record.

Waving through high-profile takeovers of leading British companies may not raise the hackles quite like a breakaway football league, but it has certainly become politically dicey. And once the government has broader powers, including to look at issues retrospectively, it’s hard to see that they won’t be used, especially on deals that have greater populist appeal than a semiconductor designer.

READ  Leicester's Vardy in contention for return against Villa - Rodgers

The Arm review, then, feels like a test. The suspicion is that it owes more to the government’s desire for a thriving domestic technology sector than the nation’s security. 

Government should sometimes look at takeovers with the national interest in mind. (Indeed, the laissez faire attitude taken in the original Arm sale is arguably the problem here). But let’s at least be up front about it. Cloaking every discussion in national security means a level of secrecy that is unnecessary if it really involves a negotiation about jobs, skills, investment and headquarters buildings.

Embedding what is effectively economic planning into the takeover process is doubly problematic for a government that has just poleaxed the nation’s industrial strategy. Industry bleating about uncertainty is often tactical. But dealmakers may increasingly be trying to navigate vaguely-defined national security concerns, acting as cover for a now-unelucidated industrial strategy.

That’s just licence to make up the rules as you go along — a bad idea in football, or in politics.


Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.