Theresa May's new government gave its whole-hearted backing to the sale of Arm yesterday, but suggested it could block future deals if they are not considered to be “in the national interest”.
May and her chancellor Philip Hammond hailed the £24bn purchase by Japanese giant Softbank, with Downing Street describing the deal as “a vote of confidence in Britain”, while Hammond said it would “turn this great British company into a global phenomenon.”
However, a Downing Street spokesperson said that future deals would be examined "on a case-by-case basis to ensure they are in the national interest," while Hammond said the government would "not stand by and watch British companies be asset stripped by foreign predators".
During her campaign to succeed David Cameron, May promised to defend “important” British sectors, and former business secretary Vince Cable has told City A.M. that May had repeatedly raised fears over deals during the coalition government.
According to Cable, May was keen to boost existing tests on the national security implications of takeovers.
“She was particularly alarmed by George Osborne's appetite for Chinese investment,” Cable said.
Early signs of a more interventionist approach from the government have alarmed some Tories – one prominent backbencher told City A.M.: “People think that foreign direct investment is a good thing, but that foreign takeovers are bad.
“We have got to get this straight in our heads. Equity investment in the UK is a good thing.”
Mark Littlewood, director general at the market-liberal Institute of Economic Affairs, said: “The idea that the Prime Minister or the secretary of state [for Business, Energy and Industrial Strategy] should be determining what takeovers can occur based on the nationality of companies or owners and some undefined concept of the 'national interest' is absurd.”
And Ukip MP Douglas Carswell added that getting the message right is especially important in the context of the UK's Brexit vote.
“It's absolutely vital that we make Britain open for business,” Carswell said.
“Neither Brits nor foreigners are going to be willing to invest in Britain if they are not free to do what they want with the companies that they invest in.”
Could May intervene on M&A if she wanted to?
Prime Minister Theresa May has warned her government will block M&A deals deemed not to be in the national interest - but what are the options?
Under the Enterprise Act 2002, the government can intervene if a merger raises public interest concerns.
In the original legislation, this was limited to matters of national security. However, clauses have since been added to include “maintaining the stability of the UK financial system” and ensuring a plurality of media ownership.
Lord Heseltine proposed greater powers for ministers in 2012, but this was rejected by the coalition government.
Former business secretary Vince Cable says: “You can raise questions if there is a threat to national security, but otherwise there is very little you can do.”