Foreign investment legislation has often originated from a perceived gap in the merger control rules for dealing with public interest concerns – such as national security. Over the past few years, we have seen foreign investment screening come of age, evolving into a separate review process from merger control, typically under the remit of a separate authority.
Many jurisdictions now permit information-sharing between the foreign investment and merger control authorities to help identify and review relevant transactions. In most cases, a notification to one authority may lead to the other becoming aware of the transaction. Some authorities even coordinate the timing of their clearance and foreign investment decisions to ensure consistency. However, not all merger control notifications will result in a need to notify the foreign investment authority and vice-versa.
To avoid delays and surprises, parties are well-advised to consider both foreign investment and merger control regimes, as well as the level of information-sharing between the authorities, at the planning stage of their transaction.
The extent of information-sharing in some key jurisdictions is set out below.
The US regime sits at one end of the spectrum, with formal separation between the national security and merger control processes. CFIUS is prohibited from sharing information provided by the parties – which in practice includes even the fact of a CFIUS filing – to others outside the process. Even after a case is complete, only a handful of members of Congress are entitled to know about the case.
Indeed, CFIUS confidentiality is considered one of the “carrots” to encourage parties to file voluntarily (which is how all filings were made before 2018, and a great many continue to be today). Parties are considered to be less likely to file voluntarily if the proprietary or other sensitive information submitted to CFIUS risks being leaked. Even the existence of a CFIUS filing can fall within this category since most deals (and therefore most CFIUS filings) do not involve listed companies, and even those that are, are often below materiality standards requiring public disclosures.
However, the US Department of Justice (DOJ) is represented on CFIUS and it is also one of the bodies (along with the Federal Trade Commission) responsible for merger control, so there remains some proximity between the agencies, despite their formal separation.
The UK’s new national security investment screening regime (NSIA) established a regime which is now separate from the merger control regime. Transactions may (and are likely to) qualify for review under both procedures – so the new regime provides for the CMA and the Department for Business, Energy and Industrial Strategy (BEIS) / the Investment Security Unit (ISU) to share confidential information and coordinate where a merger is being investigated in parallel on competition and national security grounds.
The CMA is also under a duty to provide information and assistance where requested by the Secretary of State, in connection with its functions under the NSIA. Indeed, the Secretary of State can direct the CMA not to continue to investigate a transaction, if it considers this “necessary and proportionate” to a risk to national security.
Additionally, where the CMA investigates a merger which it believes raises material public interest considerations, it must notify and provide information and assistance to the Secretary of State, who has the power to call-in non-notified transactions under the NSIA. Accordingly, notification by the CMA could ultimately trigger a review under the NSIA.
Finally, in order to share confidential information with BEIS, the CMA may seek a confidentiality waiver from the merger parties – and we have seen this occur in a number of recent cases.
A similar position is taken in Austria, where the FCA must forward all merger control notifications to the Ministry responsible for foreign investment review. This enables the Ministry to assess whether a notified merger falls within the ambit of the Austrian foreign investment rules (and will likely increase foreign investment intervention rates). Interestingly, the FCA originally opposed this forwarding requirement, citing the additional administrative burden, excessive sharing of companies’ confidential information, and the different jurisdictional reach and separate substantive tests of the two regimes.
Nonetheless, after a few teething issues, the forwarding of merger control notifications to the Ministry appears to be fully operational, and the FCA and the Ministry now even have mutual secondments of staff.
While there is no explicit prohibition against or requirement for information-sharing or consultation between the merger control and national security review authorities in China, there is commentary suggesting information-sharing does occur.
For example, when Yonghui Superstores acquired a stake in supermarket chain Zhongbai, a filing was made for merger control, but not for national security. Commentators suggested that the national security review of the deal (initiated by the authority two days after the parties received an unconditional merger control clearance) could have been triggered by information-sharing between the two authorities.
Engagement between FIRB and the ACCC can be expected behind the scenes in Australia where deals involve foreign acquirers and are notified to FIRB. Both the ACCC and FIRB are permitted to interact with each other on transactions disclosed to them, within the scope of relevant legislation and regulations on the protection of confidential information.
In practice, information-sharing and interaction happen regularly on notified deals, but this is generally initiated by FIRB, as competition issues form part of FIRB’s remit. In practice, FIRB will generally not issue its decision until the ACCC has given a ‘green light’ indication on a deal. This does not typically happen the other way given national interest and security concerns do not form part of the ACCC’s assessment.
The Ministry in charge of foreign investment review in Germany can call-in non-notified transactions falling within the scope of the foreign investment regime within five years of signing. To identify transactions of national security relevance, the Ministry screens databases of M&A transactions and considers transactions notified to the FCO. Occasionally, there appears to be contact between the Ministry and FCO.
Special provision in the competition rules allows the FCO to share some information (e.g. name and identity of the parties, business scope, turnover, domestic activities, transactional scope) with the Ministry for the purposes of foreign investment control. Notably, there are no comparable provisions in the foreign investments laws which would allow the Ministry to share information stemming from the foreign investment proceedings with the FCO.
For further information, please contact:
Nicole Kar, Linklaters