Acquisition by Insys Group Ltd of Hunting Engineering Limited

No. insys1

Undertakings given by Insys Group Limited, ABN Amro Development Capital (Guernsey) Limited and Barings (Guernsey) Limited (as trustee of the fifth ABN AMRO Causeway Development Capital Fund) in respect of the Acquisition of Hunting Engineering Limited - recommendation for release

In this submission the OFT advises under section 75J of the Fair Trading Act 1973 on the review of the undertakings given by Insys Group Limited (Insys), ABN Amro Development Capital (Guernsey) Limited (ABN Amro) and Barings (Guernsey) Limited (as Trustee of the Fifth ABN Amro Causeway Development Capital Fund) (Barings) (collectively 'the parties') on 15 November 2001 ('the 2001 Undertakings'). 

We recommend that, should the requirements set out in paragraph 11 below be met, you should release the parties from the 2001 Undertakings.

TIMING

Routine.

BACKGROUND

The acquisition of Hunting Engineering Limited in 2001 was essentially a Management Buy-Out (MBO) through Insys which was funded by ABN Amro and Barings. The 2001 Undertakings were accepted to remedy public security concerns that would arise as a result of that acquisition.  These concerns were identified by the Ministry of Defence (MoD) and related to the maintenance of strategic UK capabilities and the protection of classified information.

On 16 August 2005 Lockheed Martin UK Holdings Limited (LMUK), the UK subsidiary of the American company, Lockheed Martin Corporation (LMC), announced its proposal to acquire Insys.  On 23 September 2005, you announced that, following the issue of a special intervention notice and receipt of advice from the OFT, you were proposing to accept statutory undertakings to address national security concerns arising from this proposed acquisition. 

As the OFT's advice on the LMUK acquisition notes, the MoD considers that Insys has important capabilities within the UK in the areas of combat, weapon and communications system integration and research. These capabilities are dependent on highly classified technology and information, much of it only available to UK nationals.

The MoD's concern is that following LMUK's acquisition of Insys, LMC might choose to rationalise its defence activities with the potential consequence that these essential UK capabilities could be either run down or sold off or transferred abroad to be combined with LMC's other activities in these areas. Some of the capabilities housed within Insys are unique and LMC may be keen to complement and improve their own capabilities in these areas by combining them with those of Insys.  MoD state that this raises distinct concerns from those addressed by the 2001 Undertakings. In addition, the move to US control raises concerns for MoD due to the US International Traffic in Arms Regulations (US ITAR), which would have profound implications for UK security of supply if UK information and technology was combined with US information and technology without UK knowledge or approval.

In summary, for the reasons given, the MoD contends that the proposed acquisition of Insys by LMUK is a change of circumstances, one that negates the need for the 2001 Undertakings and requires new undertakings to be given by LMUK and LMC.  LMUK and LMC have indicated that they would be prepared to provide such undertakings, which currently are out for public consultation.

On 23 September 2005 the OFT issued an invitation to comment (ITC) on the proposal to release the parties from the 2001 Undertakings should the acquisition of Insys by LMUK and LMC be completed and suitable undertakings be accepted from LMUK and LMC.  The MoD has confirmed that they are content with the proposal.  No other responses to the ITC were received.

CONCLUSION

The OFT considers that the change of circumstances outlined above will, on acceptance of Undertakings from LMUK and LMC in respect of the intended acquisition of Insys, result in the 2001 Undertakings being no longer appropriate. 

On the basis of the above the OFT recommends that, following the completion of the LMUK acquisition and acceptance of statutory undertakings from LMUK and LMC, the parties are released from the 2001 Undertakings.

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