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In Progress
Update the rules on mergers and takeovers

We welcome overseas investment and want investors to succeed here but not when success is driven by aggressive asset-stripping or tax avoidance. We will update the rules that govern mergers and takeovers. This will require careful deliberation but we can state now that we will require bidders to be clear about their intentions from the outset of the bid process; that all promises and undertakings made in the course of takeover bids can be legally enforced afterwards; and that the government can require a bid to be paused to allow greater scrutiny.

Our Verdict

This policy represents an attempt to clamp down on predatory business practices. Inside of the broad promise to update rules on mergers and takeovers, the policy makes three other pledges:

  • require bidders to be clear about their intentions from the outset
  • all promises and undertakings can be legally enforced afterwards
  • the government can require a bid to be paused to allow greater scrutiny

The promise to update rules has been kept. The threshold for government intervention in a merger was previously when a target business had a turnover of £70 million. In June 2018, changes to the Enterprise Act lowered that threshold to £1 million.

Further changes are also under way that deliver the other three pledges. A white paper consultation, from July to October 2018, laid out plans for primary legislation (new law) governing mergers and takeovers. Although the focus is specifically on areas of core national infrastructure, the draft policy statement “does not limit the Senior Minister’s ability to exercise the call-in power in any area of the economy…”. So under the proposed legislation, “all promises and undertakings can be legally enforced”.

The statement also says if parties do not notify the senior minister about “trigger events” (threats to national security), then government can intervene. In other words, bidders are required “to be clear about intentions from the outset”.

And the call-in power proposed under the new legislation (the ability of government to intervene) is all about pausing a bid “to allow greater scrutiny”.

While the existing law and proposed legislation may not prevent asset-stripping or tax avoidance in all cases, the government has technically updated the rules as promised, and the remaining aspects of this promise are likely to come via the new legislation. Given we have grouped everything together, this policy is ‘in progress’. We will keep tracking the progress of the new legislation, so follow this policy for updates.

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