As of 23 June, the UK government can scrutinize certain foreign takeovers and other acquisitions to ensure that they do not jeopardize the UK's capability to combat, and mitigate the effects of, a public health emergency, such as coronavirus. The legislative changes highlight the national importance of life sciences companies and businesses operating in this field.

What is changing?

Section 42 of the Enterprise Act 2002 (the Act) permits the Secretary of State to intervene and investigate corporate transactions where certain public interest considerations arise. These considerations are set out in section 58 of the Act, and include situations where the transaction might pose a threat to national security, media plurality or the stability of the financial system. This public interest system is built into the framework of the normal merger control rules, which assess the impact of transactions on competition grounds.

The Enterprise Act 2002 (Specification of Additional Section 58 Consideration) Order 2020 (the Order), which enters into force today, amends section 58 of the Act to specify as a new public interest consideration "the need to maintain in the United Kingdom the capability to combat, and to mitigate the effects of, public health emergencies". Companies within the scope of the Order would include those specializing in pharmaceuticals, medical devices and technology, as well as those which manufacture personal protective equipment.

How does it work?

As with existing public interest considerations, if the Secretary of State has “reasonable grounds for suspecting” that a transaction could jeopardize the UK's capability to combat, and mitigate the effects of, a public health emergency, he/she will formally commence the intervention process by issuing a Public Interest Intervention Notice (PIIN) to the Competition and Markets Authority (CMA).

Upon receipt of a PIIN, the CMA will conduct an investigation of the merger, where it will publically seek third party views on the transaction. This is known as phase 1. At the conclusion of its investigation, the CMA will issue a report to the Secretary of State on whether the transaction poses any public interest concerns. Having received the report, the Secretary of State can either:

• conclude that there are no relevant public interest concerns and the merger can proceed;
• subject to a public consultation, accept undertakings offered by the parties in order to mitigate national security risks identified by the CMA; or
• refer the merger for further investigation.

Should the Secretary of State decide to conduct a further investigation, phase 2 will commence, and the CMA will establish a group of independent panel members (i.e. individuals who were not involved in phase 1) to look at the matter. This group will undertake a further investigation into whether the merger is likely to operate against the public interest. It will also consider whether there are any remedies to deal with the public interest considerations.

All of this analysis will be conducted alongside a consideration of the competition issues (if any) led by the CMA.

What might this mean in practice?

With the legislation having only been laid before Parliament on Monday, 22 June 2020, the fast track implementation is indicative of the Government's desire to ensure the safety of the population, especially should fears of a second wave of the pandemic materialize. It also might be an attempt to shore up the UK life sciences sector in anticipation of our exit from the EU. In this regard, the Secretary of State for Business, Alok Sharma, commented that:

"These measures will strike the right balance between the UK’s national security and resilience while maintaining our world-leading position as an attractive place to invest - the UK is open for investment, but not for exploitation".

It is, however, worth bearing in mind that since the enactment of the Act in 2002, the UK government has intervened on public interest grounds on only 20 occasions; 12 of these were on national security grounds, 7 on media plurality and once on financial stability. To date, no transaction has ever been blocked outright on grounds of public interest. As such, risk of this development preventing a significant number of transactions in the life sciences sector from proceeding to be low, though acquirers might expect more reviews and/or conditions to be imposed as part of any clearance.

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