The Norwegian government considers blocking first M&A deal based on national security concerns
The sale of Bergen Engines, a supplier of marine diesel engines, from Rolls-Royce to the Russia-based company TMH Group has caused a heated political debate in Norway due to national security concerns. As the transaction falls outside the scope of the special investment screening provisions of the Norwegian Security Act, the government is now considering taking action under a general provision of the act.
The sale of Bergen Engines, a supplier of marine diesel engines, from Rolls-Royce to the Russia-based company TMH Group has caused a heated political debate in Norway due to national security concerns. As the transaction falls outside the scope of the special investment screening provisions of the Norwegian Security Act, the government is now considering taking action under a general provision of the act.
Background
According to news reports, Bergen Engines supplies diesel engines and maintenance services to the maritime sector, including the Norwegian navy which uses the company’s engines in its coastal guard vessels.
TMH Group is a producer of railway transport technologies with ties to United Shipbuilding Corporation (USC), Russia’s largest manufacturer of military marine vessels. USC is now supposedly exploring the opportunities for a cooperation with TMH Group towards the establishment of a center for advanced marine engines.
Foreign investments and the Security Act
The Norwegian minister of defense Frank Bakke Jensen has in a recent statement to the Norwegian Parliament explained that TMH Group’s acquisition of Bergen Engines was not reviewed under the investment screening provisions in the Security Act Chapter 10. These provisions empower the Norwegian government to block or make acquisitions subject to conditions if the acquisition presents a not insignificant risk of a threat to interests of national security. However, this only applies to acquisitions of qualified ownership interests in companies subject to the act by way of individual decisions. We have previously written about these provisions here.
As Bergen Engines is not subject to the act by an individual decision, the obligation to notify the Norwegian authorities was not triggered by the acquisition of the company. The government has now stated that they are considering further screening mechanisms to identify risks related to foreign investments.[1]
However, even though the acquisition of Bergen Engines falls outside the scope of the Security Act Chapter 10, Section 2-5 grants the government a more general right to make decisions deemed necessary to prevent “activities” presenting a not insignificant risk of a threat to interests of national security. The preparatory works of the act indicate that the term “activities” should be interpreted broadly. It is stated that the provision can be used to supplement the provisions of chapter 10 in the event that the acquired company is not subject to the act by an individual decision and, even more interestingly, that it is not a requirement that the “activities” are directed towards companies subject to the act at all.
The Norwegian National Security Authority (NSM) notified Rolls-Royce on March 9th that the authorities are currently considering if the sale of Bergen Engines will be blocked pursuant to the Security Act.[2] Should the Norwegian government ultimately decide to block or set conditions for the sale, it would be the first case of such a decision based on national security interests.
[1] https://www.regjeringen.no/no/aktuelt/bergenengines/id2837289/
[2] https://www.regjeringen.no/no/aktuelt/rolls-royce-varslet-av-nsm-om-salget-av-bergen-engines-vurderes-stanset/id2837561/
