‘Toothless’ law fails to block foreign raiders

New government powers to block foreign takeovers have been labeled “toothless” after ministers stopped only a small number of deals in the first year.

The National Security and Investment Act 2021 aims to protect against predators targeting UK companies in 17 ‘sensitive’ sectors, including nuclear power, artificial intelligence, defense and energy. But The Mail on Sunday can reveal that only five deals were blocked out of hundreds that were screened.

The law also gives ministers the power to impose legally binding conditions on buyers to secure jobs and research in the UK. However, this happened in only nine cases.

The revelations come as controversy mounts over the sale of Cambridge-based semiconductor company Flusso to Sierchi, a Shanghai-based investment vehicle. Shortly after the acquisition in August, Flusso appointed two Shanghai-based directors to its board of directors.

The deal was cleared by the government, despite Flusso being involved in exactly the kind of high-tech activity ministers want to encourage – and amid fears that Beijing will dominate the sector.

Tory MP Alicia Kearns, chair of the influential foreign affairs committee, claims Flusso has been sold ‘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 co-owned by the Chinese government. But Flusso chief executive Andrea De Luca told UK Tech News that Sierchi has no ties to the Chinese government, adding that the buyer has notified Whitehall officials.

Kearns sent a scathing letter to Business Secretary Grant Shapps last week. She wrote, “By approving this transaction, we are granting the Chinese Communist Party direct access to one of our leading tech start-ups in an area of ​​critical strategic achievement.

“I must emphasize that the acquisition of a British company leading the design and sale of flow sensors – the key to consumer and industrial products produced by leading companies – by a Chinese entity, represents a significant economic and national poses a safety problem.’

A senior source from the UK semiconductor industry described the Flusso deal as ‘mind-boggling’.

The National Security and Investment Act was introduced in January 2022 after attacks by US predators on UK defense and aerospace companies, including Cobham and Ultra Electronics, raised fears of threats to national security.

The law means that for the first time, bids for companies of all sizes in critical industries will be automatically screened for threats to national security. In the past, the government would only intervene in large acquisitions. Deals that have been thwarted include the sale of microchip maker Newport Wafer Fab. It had been sold to the Chinese in 2021 without any investigation for around £63 million.

However, the acquisition by Nexperia, a Dutch company backed by Beijing, was later reversed. The Flusso deal was said to have been ‘examined and approved’ in June under the NSI law. A government source told The Mail on Sunday it was ‘unlikely’ to be looked at again. “At this point there are no reasons to recall it.”

Independent aerospace analyst Francis Tusa called the law ineffective. “If the UK’s premise is still to say ‘yes’ to virtually all takeovers then the law is absolutely toothless,” he said.

Conservative MP Tobias Ellwood, chairman of the parliament’s defense committee, said the government should clearly define which industries it should protect “rather than taking it on a case-by-case basis”.

He said: ‘I really don’t think the penny has dropped on how fragile Britain has become.’

While the government disclosed how many deals were blocked last year, it has yet to disclose how many have been investigated. The annual figures will be released in the spring. So far, it has been reported that in the first three months of 2022, more than 220 potential acquisitions have been screened, of which only 17 have been subject to a full investigation. There were no blocks or conditions attached.

The Business Department said the government only intervenes in “a small minority” of deals.