Hytera, Sepura deal faces UK scrutiny over risk to national security

13 April 2017. By Simon Zekaria*.

Hytera Communications' proposed acquisition of UK-based rival Sepura could pose a national-security risk to British emergency services, government agencies and covert operatives, MLex has learned.

Sepura's walkie-talkies are used widely to transmit potentially sensitive operational information.

Hytera, a Chinese maker of radio systems, has agreed to pay 74 million pounds ($92.7 million) in cash for Cambridge, England-based Sepura, but the deal has hit a regulatory hurdle in the UK.

This week, the UK government opened a public-interest probe into the takeover. Under laws from 2002, the executive has powers to act like a court in mergers on grounds of national security, media plurality and stability of the UK financial system.

'National interests'

The Department for Business, Energy and Industrial Strategy is reviewing the deal, and has asked the Competition and Markets Authority to report back on competition and public-interest aspects of the transaction.

The CMA will consider whether a public-interest argument is relevant to the acquisition, due to Sepura's commercial arrangements with UK government entities.

The UK antitrust regulator will submit its report to the government by May 4, and will rely on external legal advice to opine on national security issues.

The government will then decide whether the CMA should carry out a more in-depth merger review. It could make its assessment purely on public-interest grounds, rather than competition concerns.

"The government encourages inward investment to the UK, but we must also protect our national interests," said a spokesman for the Department for Business, Energy and Industrial Strategy.

Sepura and Hytera said they are assisting the government and the CMA in their investigations.

Last month, Sepura withdrew its filing for regulatory approval in Germany because its revenue in the country fell below the threshold for competition clearance. Spain's competition authority is also scrutinizing the deal.

There have been 11 UK public-interest interventions under the 2002 laws, six of which have been on national-security grounds. The government cleared the deals, including those involving industrial conglomerates Lockheed Martin, Finmeccanica and General Electric.

UK government contracts

Sepura supplies equipment and devices to the emergency-services, public-transport and military sectors globally. It provides devices to all 43 police forces in England and Wales, and supplies 99 percent of covert radios in the UK.

The company specializes in "trunked" radio systems that operate at low frequencies, designed to be used by professional services.

Sepura is an exclusive supplier to the government's health department, which oversees the National Health Service. Every ambulance in the UK has three Sepura radios, it is understood.

Last year, the UK's justice department launched a tender to supply 118 prisons in England and Wales with radio equipment. These prisons currently use some Sepura devices.

The government declined to comment on communications tenders for British intelligence services.

Telecommunications network

The review into potential security threats posed by the deal comes as emergency services migrate their communications infrastructure to the national wireless network owned by operator EE, which was acquired by incumbent operator BT.

The police, fire and ambulance services currently use a dedicated public-sector network provided by Airwave Solutions, but that contract will expire in 2019 as the government looks to prune costs.

Sepura has cited problems with the network migration as one of the reasons the company has faced financial challenges in the past year.

The deal and its regulatory review come amid heightened concerns over national security in the country, following the terror attack in Westminster last month. There are also calls for stricter control of foreign investment in the UK's critical national infrastructure.

In recent years, there has also been attention on Chinese technology companies' access to foreign communication networks, including in the US.

* Aicha Marhfour contributed to this article