He writes:
Hytera is to buy Sepura in a cash offer at 20p/share for a relatively small amount of £74 million, which had an expected completion deadline but for such investigations already passed as of mid Q1 2017.
Analysis
Hytera already supplies the UK government Ministry of Justice (HM Prisons) with its radio sets, so it must be trusted by the UK government.
Hytera is not an SOE (Chinese State Owned Enterprise) and has no Chinese government investment.
Hytera has traded since 1993 in the radio systems segment.
The German authorities also looked at this deal and allowed it to pass in early Q1 2017 (deal too small to be considered and not a security issue).
Its takeover of Sepura plc, a UK radio systems firm, is in no way an issue of UK national security nor does it change market concentration, since Hytera and Sepura products are not currently overlapping (used in the same applications) though they are in the same general communications technology area. Rather it is a sensible strategic move which brings investment to the UK and Cambridge and enables Sepura workers and shareholders to move forward.
The possible UK government intervention threatens all this and if it does unexpectedly block this normal M&A it will have been a betrayal of trust causing untold damage to stakeholders.
Sepura is a UK headquartered business with 5% domestic trade and 95% export trade. This intervention is related only to the 5% of the business.
Sepura’s handsets are used by the UK police forces. These handsets use the TETRA technology. This technology being phased out by the end of 2018. Therefore, after this takeover it is a matter of safely decommissioning the products, for which Sepura has extremely tight and regulated vetting. After this short period, the police forces will take on completely new ENS systems (new comms technology), and will have the opportunity safely again to contract these out via the entire market.
Precedent: The CMA has, in allowing much larger and also security related past deals to go ahead, made the parties accept undertakings as part of the deal.
It seems to CIR that the government would do least damage if it allowed Hytera to buy Sepura as per the deal agreed by shareholders and management of both companies in a friendly and co-operative environment.
In doing so, the UK government could put in undertakings for the companies to adhere to between the deal taking place and the end of 2018 when the incumbent Sepura technology is phased out of use.
In doing this, the UK government would have avoided betrayal of trust of all stakeholders in Sepura, its management, staff and shareholders, while acting to cover any (spurious in our view) security issues in the deal. The Sepura company can continue to trade via Hytera’s investments in a similar way and there is less risk to jobs (since Sepura needs the investment and Hytera is a something like a White Knight). Also, shareholders can obtain the cash for the business at the level expected, rather than lose half or all of their investments, which in many retail cases represent savings, pensions, trusts for family and so on. Blocking the deal would be highly disruptive to everyone involved with Sepura. The UK government would be acting in such a way as to negatively impact many of its core support in intervening in this case in this way.
Action
The CMA should move ahead with allowing the deal and making simple undertakings with the highly co-operative Sepura and Hytera businesses in the same way the UK government allowed the nuclear power deal to go through with Chinese involvement.
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