National security or industrial strategy in disguise, and does it lead to nationalisation?

An article in the Financial Times (18 May 2022) states that the UK business secretary will be warned in a report that the completed acquisition of Newport Wafer Fab, a semiconductor producer, could undermine one of the country’s strategic industries. Newport Wafer Fab was majority owned by a UK individual and had significant debts. Since the acquisition, the new owner Nexperia, a Nethlerlands-based company, is reported to have invested millions into the business and paid-off a significant amount of debt.  The fundamental issue seems to be that Nexperia is owned by a Chinese company, Wingtech.

If Nexperia is ordered to sell Newport Wafer Fab, will the new purchaser be better or worse?  It has been reported that a consortium of nine UK companies has expressed a willingness to buy the business. The consortium would need to raise the money, so it is not certain that this is a real option.

The UK government is already facing difficulties as it seeks to address a deal that was blocked by regulators in this sector, namely, the sale of Arm Holdings to Nividia, a US company.  The government is looking for an initial public offering in London, whereas a listing in New York, given the valuation expertise there, would seem the natural choice for its Japanese owner, Softbank.  

Keeping such businesses UK owned smacks of a jingoistic industrial policy, and where government money is used to support this initiative there is a risk it becomes nationalisation through the side-door. UK nationalised sectors do not have a good track record, such as the creation of British Leyland.  The UK may simply be too small in scale to be a significant player on such a global market. Even the EU is facing a challenge, which it is seeking to address through The European Chips Act, which adds EUR 15 billion to the existing EUR 30 billion in public investment in the sector, as it seeks to establish an EU-based chip sector using Intel built facilities.  This is a level of investment that is beyond the UK.

As an aside, it is contradictory to promote the City of London as a key player in the global market for the free flow of capital, and at the same time limit capital flows in relation to certain sectors in the UK.  

These challenges come about in large part due to the National Security and Investment Act 2021 being based on a policy concern about foreign ownership rather than a fundamental legal and economic basis.  The consequences are important decisions about the direction of UK industry being taken by politicians, competition law being mixed with non-competition law issues, and an M&A market with a higher risk level and greater transaction costs.