The UK Government has confirmed it is currently reviewing the acquisition by China-backed Nexperia of the UK’s largest silicon wafer manufacturer, Newport Wafer Fab (NWF). This statement will go some way towards assuaging concerns expressed about the takeover following press reports that ministers had quietly approved the deal.
Recent commentary has also served to highlight once more the significance of semiconductors, and other essential components of electronic devices, in the battle for tech sovereignty and, ultimately, national security.
What has happened so far?
Nexperia (which was already NWF’s second largest shareholder) acquired 100% of NWF’s shares in July 2021 (see our previous post). In response to concerns raised at that time, the UK Prime Minister announced a security review of the acquisition.
At that stage, the UK’s new far-reaching investment screening regime, the National Security and Investment Act (NSIA), had not yet come into force. However, the Government had powers to intervene under the previous legislation, the Enterprise Act 2002. And the Government still retains the ability to “call in” the transaction for review using the retrospective provisions under the NSIA, which entered force in January 2022.
Cut to nine months later, when reports emerged that the Government had decided not to intervene. Despite Nexperia denying their accuracy, the reports nonetheless had the effect of triggering a flurry of concerns and press coverage.
These concerns were exacerbated by the publication, on 5 April 2022, of a report on the takeover by the Foreign Affairs Committee of Parliament’s House of Commons (Committee). The Committee stated that it had been forced to conclude that a review had not in fact been started, and it expressed its concern “about the Government’s apparent lack of appetite to use the powers at its disposal to protect British companies in this industry”.
It concluded with a series of demands:
“We ask that the Government set out the circumstances in which the National Security Adviser is engaged in reviews under the National Security and Investment or Enterprise Acts; the reasons why the Prime Minister asked the NSA to undertake a review of Newport Wafer Fab; why the NSA did not undertake such a review; and for an update on the nature of the continued monitoring by the Investment Security Unit.”
On the following day the Parliamentary Under-Secretary for the Department for Business, Energy and Industrial Strategy confirmed that a review is, in fact, taking place and that the acquisition is “being considered very closely”. However, Lord Callanan explained that as this is a quasi-judicial decision that will be taken by the Business Secretary under the powers granted to him by the NSIA, he was unable to comment further on the details of the review.
In addition, Lord Callanan confirmed that the Department for Digital, Culture, Media and Sport is working on a semiconductor strategy that will be published shortly to improve the supply of semiconductors to key industries. The Government’s decision could hang on these plans – in particular any recommendations in that report relating to the protection of the UK’s domestic semiconductor industry could make an intervention inevitable.
Concerns about foreign investment in semiconductors
It does not come as a surprise that the takeover of NWF is at the centre of heated debate. NWF is the UK’s largest semiconductor manufacturer and the Committee has identified the takeover as “a cause for concern” given the importance of semiconductors to UK’s national security.
New and emerging technologies have become a focus for foreign investment controls internationally and an area of growing interest for the UK Government. This has been particularly true of semiconductors, against the backdrop of a global semiconductor shortage.
This is reflected in the much-covered NSIA, which radically overhauls foreign investment screening in the UK and covers a range of technology related sectors as part of the mandatory notification regime, including certain semiconductors (which may fall within several mandatory NSIA sectors, in particular “Advanced Materials”). The Committee has also launched an inquiry into the interaction between technology and foreign policy.
The NWF furore follows hot on the heels of NVIDIA’s decision to abandon its proposed acquisition of ARM in February 2022, which had been referred to the CMA for an in-depth investigation on the grounds of national security (and competition) concerns.
For further information, please contact:
Nicole Kar , Partner, Linklaters
nicole.kar@linklaters.com
