This guide addresses 9 key questions on minority investments under the Act. An introductory guide to the Act is available here.
1 Does the Act apply to minority acquisitions?
Yes, it can do. The Act applies if the right or interest acquired in or in relation to the target entity is deemed under the Act to confer control.
2 How does it apply to share transactions?
Under the Act a ‘share’ means the issued share capital of an entity. The percentage of shares held is the nominal value percentage of the total issued share capital.
The Act does not apply if there is a share (equity) acquisition such that the total shares held do not exceed 25%, unless the share confers voting rights that enable the holder to secure or prevent the passage of any class of resolution governing the affairs of the company (for example, by virtue of the articles conferring weighted voting rights).
If the transaction involves the acquisition of more than 25%, then this constitutes control.
2.1 Multiple share transactions with the same target entity
If there are more than one transaction over time in relation to the same target entity, whether or not contractually foreseen, then each may constitute a ‘trigger event’ and must be reviewed to determine whether a mandatory or voluntary notifiable transaction arises. The trigger event thresholds are 25%, 50% and 75%.
For example:
|
P buys 10% in T from S: |
no control so the Act does not apply |
|
P then buys 25% in T from S (aggregate total 35%): |
control acquired because the 25% threshold is passed therefore, a trigger event occurs, and notification may be required or appropriate |
|
P then buys 10% in T from S (aggregate total 45%): |
arguably additional control exists but the 50% threshold is not passed so no trigger event, and no notification is required or appropriate |
|
P then buys the remaining shares (aggregate total 100%): |
the 50% threshold (and, indeed, the 75% threshold) has been passed, therefore a trigger event occurs and notification may be required or appropriate |
As this example shows, a transaction between the same parties may be subject to multiple notifications.
2.2 Special case in relation to voting rights
Control will be deemed to arise for a transaction where the purchaser acquires voting rights that enable the purchaser to secure or prevent the passage of any class of resolution governing the affairs of the entity. In considering this point, purchasers will need to consider the constitutional documents of the target entity, as well as company law applicable to the target entity.
2.3 What is the consequence if the Act applies to a share transaction?
If the Act applies, the transaction can be assessed by the government on national security grounds. Further, the transaction is either subject to a
- mandatory pre-notification (application and approval to be sought prior to completion of the transaction), or
- voluntary notice (application and approval may be sought), or
- validation application (application and approval for a completed transaction that should have been notified using a mandatory notice).
The transaction is subject to a mandatory pre-notification if the target entity is active in any of 17 sectors.
The 17 sectors
- Advanced Materials
- Advanced Robotics
- Artificial Intelligence
- Civil Nuclear
- Communications
- Computing Hardware
- Critical Suppliers to Government
- Cryptographic Authentication
- Data Infrastructure
- Defence
- Energy
- Military and Dual-Use
- Quantum Technologies
- Satellite and Space Technologies
- Suppliers to the Emergency Services
- Synthetic Biology
- Transport
3 How does the Act apply to acquisitions of other interests?
3.1 What are other interests?
An acquisition of shares and/or the holding of any other rights or interests in or in relation to the target entity are included in the consideration. Examples include:
- rights to appoint directors,
- options,
- exclusive commercial rights,
- intellectual property rights, and
- long term contracts.
3.2 The special case for other interests
If the transaction results in the purchaser being able materially to influence the policy of the entity, then the transaction is caught by the Act. The exception is if the purchaser already had material influence prior to the transaction.
3.3 What is the consequence if the Act applies to an acquisition of other interests?
If the Act applies, the transaction can be assessed by the government and will be assessed if the government issues a call-in notice. Further, the transaction is subject to a voluntary notice (application and consent may be sought at any time). It is not subject to a mandatory notice.
4 How does the Act apply to joint acquisitions?
If two or more persons hold an interest, for example, two persons agree jointly to purchase 40% of the shares in a target entity, each of them is treated under the Act as holding the 40%. (Thus, the Act does not in this example consider each purchaser holds 20% in the entity).
This same viewpoint applies to two or more persons whose respective interests in an entity are the subject of an agreement or arrangement by those persons.
Similarly, two persons who are members of the same family or are related by a marriage will be regarded as connected persons and each treated as holding the combined interests or rights of both persons.
Additionally, two or more persons will have their interests aggregated in the same way if they are deemed to have a common purpose, because they coordinate their influence on the activities, operations, governance or strategy of the entity or use of the asset.
A consequence is that if a transaction is subject to the Act, in assessing the transaction and in particular the so-called ‘purchaser risk’, the government will have regard to each of the purchasers and may intervene on the basis of its assessment of any of the purchasers.
5 How does the Act apply to the acquisition of rights rather than ownership?
The Act treats the person that controls a right as the person that holds the right. Similarly, an interest held by a nominee of a person will be deemed to be held by the person, not by the nominee.
6 Can informal guidance be obtained in advance?
No. However informal discussions with government can occur and this may provide some comfort to the parties that their concerns are more theoretical than real. Such discussions do not constitute guidance and are not binding on the government.
7 Will the minority acquisition become public information due to the application of the Act?
Information obtained by the government during its assessment may be disclosed to other public authorities in the UK and to the public authorities of other countries. A constraint on this is that data protection legislation must not be contravened.
Should the government decide there is a national security concern and so issue a final order that blocks or imposes conditions on the transaction, the government will publish a summary of the final order.
8 Can I appeal the government’s decision?
Yes, a decision by the government to block a transaction or impose conditions is subject to a court appeal. The appeal must be lodged within 28 days from the day after the government’s decision.
An appeal can also be made in relation to earlier decisions or actions, for example, the decision by the government that the Act applies to a transaction because it issued a call-in notice.
9 Do I need to notify the transaction to any other bodies?
Notification under the Act is in addition to any notifications that should be made. For example, a notification under the Act and under the competition merger control provisions of the Enterprise Act 2002 may be necessary. A consent obtained in relation to a transaction under another regulatory regime does not mean that consent can be assumed under the Act.
Disclaimer
This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2024.