Concern: Business Secretary Grant Shapps
New Government powers to block foreign takeovers have been branded ‘toothless’ after Ministers halted only a tiny number of deals in the first year.
The National Security and Investment Act 2021 is supposed to provide protection against predators targeting British firms in 17 ‘sensitive’ sectors including nuclear, artificial intelligence, defence and energy. But The Mail on Sunday can reveal that just five deals were blocked out of the hundreds that were screened.
The law also gives Ministers powers to impose legally binding conditions on buyers in order to safeguard jobs and research in the UK. However, this happened in just nine cases.
The revelations come as controversy mounts over the sale of Cambridge-based semiconductor company Flusso to Sierchi, a Shanghai investment vehicle. Shortly after the acquisition in August, Flusso appointed two Shanghai-based directors to its board.
The deal was given a green light by the Government despite Flusso being involved in precisely the kind of hightech activity which Ministers want to encourage – and amid fears over Beijing gaining dominance in the sector.
Tory MP Alicia Kearns, chair of the influential Foreign Affairs Select Committee, claims Flusso was sold by ‘stealth’.
Unusually, when the deal was announced last summer, Flusso did not disclose the buyer’s identity. The South China Morning Post says Sierchi is ultimately partowned by the Chinese government. But Flusso chief executive Andrea De Luca told UK Tech News that Sierchi does not hold any ties to the Chinese Government, adding that the buyer did notify Whitehall officials.
Kearns sent a scathing letter to Business Secretary Grant Shapps last week. She wrote: ‘In waving through this transaction, we are granting the Chinese Communist Party direct access to one of our leading tech start-ups in an area of vital strategic performance.
‘I must stress that having a UK company leading on the design and selling of flow sensors – key to consumer and industrial products produced by world-leading companies – being taken over by a Chinese entity represents a significant economic and national security concern.’
One senior source from the British semiconductor industry described the Flusso deal as ‘bewildering’.
The National Security and Investment Act was introduced in January 2022 after swoops by US predators on British defence and aerospace companies including Cobham and Ultra Electronics raised fears about threats to national security.
The Act means that, for the first time, bids for companies of all sizes in critical industries are automatically screened for national security threats. In the past, the Government would only intervene in large takeovers. Deals that have been thwarted include the sale of microchip maker Newport Wafer Fab. It had been sold to the Chinese in 2021 for about £63million without any scrutiny.
However, the takeover by Nexperia, a Netherlands company backed by Beijing, was subsequently overturned. The Flusso deal is understood to have been ‘scrutinised and cleared’ under the NSI Act in June. A Government source told The Mail on Sunday that it was ‘unlikely’ it would be looked at again. ‘At the moment, there are no grounds to call it back in.’
Independent aerospace analyst Francis Tusa slammed the law as ineffective. ‘If the UK’s starting point is still to say ‘yes’ to virtually all takeovers then the Act is absolutely toothless,’ he said.
Conservative MP Tobias Ellwood, who chairs Parliament’s Defence Committee, said the Government must clearly define which industries it needs to protect ‘rather than looking at it on a case-by-case basis’.
He said: ‘I really don’t believe the penny’s dropped at just how exposed Britain has become.’
Although the Government has disclosed the number of deals blocked last year, it has not yet revealed how many were investigated. Annual figures will be released in spring. So far it has been announced that in the first three months of 2022 more than 220 potential takeovers were screened and of those just 17 were subjected to a full investigation. No blocks or conditions were attached to any.
The Business Department said the Government only intervenes in ‘a small minority’ of deals.
