Navigating the Westinghouse Merger Control Process

On 11 October 2022, Brookfield Business Partners announced the proposed sale of US headquartered company, Westinghouse Electric Company, to a joint venture comprising Brookfield Renewable Partners and Cameco Corporation, a Canadian registered company. Brookfield Renewable will own 51% of Westinghouse and Cameco the remaining 49%.

Westinghouse provides technologies, products and services to the nuclear power generation sector and is the original equipment manufacturer to more than half of the civil global nuclear reactor fleet. In the UK its subsidiary, Springfields Fuels Limited (Springfields), provides nuclear fuel for the whole of the UK’s civil nuclear sector. The UK government quite properly regards Springfields as a strategic national asset.

Cameco is one of the largest global suppliers of uranium fuel for nuclear energy with significant uranium mining and milling operations, as well as refining and conversion facilities. “We’re witnessing some of the best market fundamentals we’ve ever seen in the nuclear energy sector,” Cameco’s chief executive, Tim Gitzel, said.

The Brookfield/Cameco transaction for Westinghouse is expected to close before the end of the year.

The transaction raises two separate issues: firstly whether there are any competition law concerns arising from bringing together two very large companies in the nuclear sector and, secondly, irrespective of whether the new entity potentially reduces competition or not, whether there are any national security considerations for the UK.

Merger Process.

Prior to Brexit, merger control was a complex process managed by the Competition and Markets Authority (CMA) in the UK. Ultimately, mergers were adjudicated in the EU. Post Brexit, the CMA is now the governing competition authority for the UK and also reviews larger, more complex and international mergers such as this proposed Westinghouse transaction. The merger process itself remains very complex. The CMA’s statutory authority derives from the Enterprise Act 2002, as amended; the CMA has published detailed guidance on this subject.

On 2 August 2023, almost a full 10 months after the deal was announced, the CMA invited comments on the proposed acquisition of Westinghouse Electric Company by the Brookfield/Cameco JV. The substantial period of time following the deal announcement suggests that the proposed merger parties may already have been communicating with the merger authorities. The CMA invitation read;

“The Competition and Markets Authority (CMA) is considering whether it is or may be the case that this transaction, if carried into effect, will result in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services. To assist it with this assessment, the CMA invites comments on the transaction from any interested party”.

The CMA has therefore decided to investigate this transaction and is seeking comments from third parties. The CMA has two phases for assessing whether a proposed merger (or a merger which has already taken place) could reduce competition in the UK, Phase 1 and Phase 2. At this stage, we are talking principally about Phase 1.

After starting an investigation, the CMA is in most cases required to decide whether the test for a merger reference is met within a timetable of 40 working days, failing which it loses its ability to refer the merger to a Phase 2 inquiry. The timetable starts on the first working day after the CMA has confirmed that it has sufficient information to enable it to begin its investigation.

The CMA’s “duty to refer” under Phase 1 will be met if the CMA has a “reasonable belief, objectively justified by relevant facts, that there is a realistic prospect that the merger will lessen competition in the UK substantially”.

If the CMA finds in this case that there is no duty on its part to refer, then the transaction is cleared in the UK from a competition/merger perspective. If it finds that there is in fact a duty to refer, then the Enterprise Act provides a mechanism known as Undertakings In Lieu of Reference, or UILs, for the proposed merger parties to submit to the CMA for its approval. If no UIL is offered by the merger parties, the process moves on to Phase 2. The CMA then determines (in consultation with third parties) whether UILs which have been submitted to it by the merger parties are acceptable. If the CMA determines that the UILs are not acceptable, it will then refer the proposed deal to Phase 2. The UIL process adds another 10 working days to the timetable making 50 working days in total.

If the CMA initiates a Phase 2 investigation then this can take a further 24 weeks and implementation of any remedy can take up to an additional 12 weeks, this period can be extended further.

The parties should now, if they have not already done so, discuss how the merger assessment timetable mentioned above could impact the scheduled closure of the deal before the end of 2023. If the CMA’s concerns are allayed and if the deal does not progress to Phase 2, the scheduled closure of the deal by the end of the year is probably still achievable. If it is referred to Phase 2 then the position is much less clear.

The above summary relates solely to the merger process conducted by the CMA. We are not commenting here on the substantive legal issues concerning whether there is or is not likely to be a lessening of competition in the UK market.

National Security Implications.

Westinghouse UK is a critical supplier of nuclear fuel to the civil nuclear sector in the UK. It was previously owned by British Nuclear Fuels Limited, more commonly known as BNFL. Toshiba (Japan) purchased BNFL USA and Westinghouse UK in 2006 and then subsequently, when Toshiba got into financial difficulty, sold the company to Brookfield Partners in 2018. Brookfield now proposes selling Westinghouse to a JV of which Brookfield Renewable will be the 51% majority shareholder with Cameco owning the remaining 49%.

The National Security and Investment Act 2021 (NSIA) came into force on 4 January 2022. Prior to its introduction, there had been concerns for many years that acquisitions of UK companies and assets by foreign-owned companies prejudiced the UK’s national security interests. The NSIA, therefore, introduced a statutory regime to give the government power to intervene and scrutinise corporate transactions in order to protect national security interests in the UK. The Cabinet Office has also recently published its own guidance, National Security and Investment Market Guidance April 2023.

Clearly, the NSIA was not in force to protect earlier transactions involving Westinghouse, but the government will now need to determine whether or not the NSIA applies to this proposed transaction and if so what its next steps should be. Subject to this determination, the parties’ advisors will be conducting their own analysis.

David McIntosh

David McIntosh was admitted as a Solicitor in 1988 and is a highly experienced commercial projects lawyer who has advised clients in a number of different fields including intellectual property, data privacy, procurement law (both public and private), manufacturing, distribution, information governance and general regulatory matters covering both the nuclear and pharmaceutical sectors.

For more information and advice on nuclear regulatory or competition matters, please contact David McIntosh on or +44 (0) 7483 300 132.

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