UK government blocks Chinese takeover of Mettis Aerospace
Planned acquisition might be referred to a phase 2 assessment with the Competition and Markets Authority being required to submit a report to the Secretary of State by March 17
7 Jan 2020 | Michael Marray

The UK government has blocked the acquisition of Mettis Aerospace Limited by Chinese fund Aerostar.

In late December, Andrea Leadsom, Secretary of State for Business, Energy & Industrial Strategy, issued a public interest intervention notice (PIIN) on the grounds of national security.

Leadsom will make the final decision on whether the proposed sale should be referred to a phase 2 assessment, taking into account both competition and public interest issues.

The Competition and Markets Authority (CMA) is required to submit a report to the Secretary of State in accordance with section 44 of the Enterprise Act 2002 by March 17. Comment is invited from interested parties by January 10.

Leadsom announced the review on the same day, December 20, that she waved through the takeover of the UK aerospace business Cobham by US private equity firm Advent International.

The four-billion-pound (US$5.24 billion) takeover of Cobham has generated controversy within UK industry, given its leading position in defence electronics, and in particular its expertise as an air-to-air refuelling specialist.

Advent has made legally binding commitments relating to employment and research and development (R&D) spending in the UK. Cobham will maintain R&D spending at up to 4.4% of UK sales to December 2024, and retain the Cobham name in the UK.

The Cobham deal would almost certainly have been blocked had Labour’s Jeremy Corbyn won the UK election on December 12.

But Prime Minister Boris Johnson won a big victory for the Conservative Party, and though he would like to expand business ties with China, he is clearly looking for a close relationship with the US.

A decision on whether to let Huawei participate in building the UK 5G network is also still pending, and the US has been exerting pressure, especially given the close sharing of intelligence between the US and the UK.

Mettis Aerospace Limited is based in Redditch in the West Midlands. In 2018, Mettis Aerospace group sales revenue were up 10% year-on-year to 82.5 million pounds which reflects ongoing growth in sales of new and next-generation aircraft and engines. Operating profit for the financial year was 9.4 million pounds, down slightly on the previous year.

In an official statement, the UK government noted that it had been made aware of the proposed acquisition of Mettis Aerospace by Aerostar, a fund established in China, either directly or through Ligeance Aerospace Technology, a company owned by Aerostar and incorporated in China.

Under the Enterprise Act 2002, the Secretary of State for Business, Energy and Industrial Strategy has the power to intervene in certain mergers on public interest grounds relating to national security.

On December 20, acting on official advice, the Secretary of State issued a public interest intervention notice, confirming that she is intervening in the merger on national security grounds. In reaching this decision, she considered the representations received from the Secretary of State for Defence.

The Competition and Markets Authority (CMA) will prepare a report on the jurisdictional, competition and national security aspects of the proposed transaction. The CMA has until midnight on March 17 to complete and submit this report to the Secretary of State.

In addition, an Order was made pursuant to paragraph 2(2) of schedule 7 to the Enterprise Act 2002 to prevent Mettis Aerospace taking any actions that might raise national security concerns. The comprehensive Order prevents the completion of the transaction, and the transfer of material or information between the parties, while the transaction is being investigated.

Leadsom said that “the Enterprise Act provides the government with powers to intervene in, and, if necessary, block mergers in order to protect national security. I will not hesitate to use my powers to protect national security, if it is appropriate to do so.” 

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