New UK national security law has implications for telecoms M&A

The new national security law that could enable the UK government to block mergers and acquisitions moves it doesn’t fancy has come into force.

Westminster is doing its best to maintain a pro-trade environment by insisting that the majority of deals will be unaffected. Nonetheless, it’s pretty clear that there could be big implications for the telecoms sector, particularly given the timing of the move.

The National Security and Investment (NSI) Act was conceived in the wake of the Huawei furore a couple of years ago, and doubtless keeping a tight rein on Chinese involvement in key strategic sectors is still at the heart of its existence. But with France’s Altice – which is more investment group than telecoms operator, in many ways – having upped its stake in BT at the back end of last year, there are clearly broader implications.

Not that the government has made any comment on Altice’s involvement in BT; it could be quite happy for a French takeover to go ahead, should the firm move to increase its holding further. But if its desire is to keep the UK’s telecoms infrastructure in domestic hands, it now has a a further weapon in its arsenal to enable it to enforce that.

Just to be clear, ‘telecoms’ as a whole sector does not feature on the government’s list of 17 areas of the economy that would be likely to trigger action under the new law because of their sensitivity. However, there are many listed that cross over with the telecoms space – AI, communications, data infrastructure and satellite, for example – so any telecoms deal could potentially trigger what the government terms a call-in.

The government can exercise its call-in power on any deal that it considers could give rise to a national security concern. Following an assessment of the situation, the Secretary of State will then clear the acquisition or take action.

“The government will also be able to impose certain conditions on an acquisition or, if necessary, unwind or block it – although it is expected this will happen rarely and the vast majority of deals will require no intervention and be able to proceed without delay,” it notes.

On the point about unwinding a deal, it’s important to note that while the law can be applied retroactively, in cases in which false or misleading information was provided, but only dating back 12 November 2020, the day after the legislation was introduced in Parliament.

Crucially, perhaps, that means the law could apply to Nexperia’s acquisition of Welsh chipmaker Newport Wafer Fab, completed in July. The sale of a strategic UK asset and its largest chipmaker naturally set tongues a-wagging, with memories of Arm’s acquisition by Japan’s Softbank five years earlier still fresh. Concerns were exacerbated by the fact that Netherlands-based Nexperia is Chinese-owned. And indeed, a couple of days after the purchase was announced, the UK government announced it would investigate on national security grounds.

There is, of course, a big difference between blocking deals due to security concerns and simply seeking to keep national assets in domestic hands…while at the same time creating a welcoming climate for foreign direct investment.

Given that the NWF deal came after all the fuss over Huawei’s involvement in the UK telecoms sector, its clear where that sits. But it’s not so clear when it comes to the likes of BT. However, telecoms infrastructure can always be shoved into the ‘strategic national asset’ pigeonhole, therefore the law could be made to apply whatever the current – or future – administration’s stance on foreign takeovers.