In a dispute between staunch allies – the US & UK over the supplier of classified technology to nuclear submarines, US authorities have warned to curtail defense cooperation with Britain, reported the UK-based Telegraph.
Intelligence sources told the media outlet that if the business secretary, Kwasi Kwarteng, blocks the £2.6 billion ($3.28) deal of Ultra Electronics to Boston-based private equity firm Advent International, it would undermine the future collaboration between the two countries, the report said.
Last year, Kwarteng directed regulators to probe the acquisition of British defense contractor Ultra Electronics by a US private equity firm on national security concerns. The takeover bid is lodged by another UK-based firm, Cobham, owned by the American private equity group Advent.
The US-based sources accused Kwarteng of intentionally discriminating against US corporations after ordering a national security probe into a buyout of Ultra.
The acquisition has caused quite a stir in the United Kingdom because the firm manufactures key military communications technology, including the highly classified Trident nuclear submarine kit.
A senior US Congressional intelligence source said: “At a time when allies like the US and the UK are looking to deepen defense cooperation, we need to remove obstacles, not create them.”
“Congress has already taken action to ease some of the restrictions on British defense companies operating in the US,” the source added, referring to recently lifted limitations on British companies such as BAE Systems and Rolls Royce. This allows them to conduct more freely across the Atlantic.
“But instead of adopting a similar approach, it seems the British government is determined to impose unnecessary obstacles that make it harder for American defense firms to operate in the UK.”
Meanwhile, Kwarteng obtained an initial report on the deal last month and decided to continue negotiations with Advent in order to find a compromise that would allow it to proceed.
If these negotiations fail, the Business Secretary is expected to urge the Competition and Markets Authority (CMA) to conduct a rare in-depth phase two examination, which would make it difficult to meet Advent’s August 4 target for completion of the deal and might ultimately prevent the takeover from taking place.
Is The UK Being Fussy?
The British government already had the right to engage in mergers and acquisitions on national security grounds. However, the new National Security and Investment Act, adopted on January 4, gave the business secretary wide-ranging powers to interfere in such deals.
According to previous reports, the UK government has already indicated that they may ban China’s state-owned nuclear energy corporation from developing a nuclear reactor in the UK, citing national security concerns.
Boris Johnson’s administration has begun to adopt a tougher stance on foreign ownership of critical defense and nuclear assets.
Officials from the United States claim that the British government is exploiting powers enacted in January to restrict hostile states’ ability to acquire companies with connections to British security services.
They argue that these powers should not be extended to close allies such as the United States because the UK and the US already have intelligence-sharing agreements as part of the Five Eyes alliance.
Furthermore, the two countries work closely together to preserve the British nuclear deterrent. Last year, the United States signed the AUKUS, a trilateral security pact with the United Kingdom and Australia, to collaborate on the development of a new generation of nuclear submarines.
Other military research initiatives, such as the development of hypersonic weapons, are also being discussed as part of the agreement’s expansion.
A senior US official said: “We do not distinguish between a British investor in a US company for reasons of national security. “It’s not fair that the British government treats American firms this way.”
US officials are concerned that any prolonged delay may exacerbate the Ultra takeover. According to officials from the Department of Trade, Energy, and Industrial Strategy, the deal may still be authorized if Advent is willing to make commitments to resolve national security concerns.
Ultra’s representative said the company was preparing an “appropriate undertaking to protect British national security interests” in cooperation with British officials.
Nevertheless, it appears to be challenging at times to find a middle ground between the UK’s aim to oversee a “global Britain” that is open to global investment while also attempting to protect British industries.