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Acquisition of UK Video Games Maker Sumo Group Conditioned on Clearing US and UK National Security Review

on Wednesday, 21 July 2021.

Tencent, the Chinese owner of WeChat (a popular social media messaging app), offered on Monday to buy all the shares of AIM-listed video games developer Sumo Group for £919 million cash.

The offer has been recommended by Sumo’s directors and the acquisition is intended to complete by means of a scheme of arrangement.

Completion is conditioned on receiving a green light from the US federal agency responsible for vetting acquisitions of US businesses by non-US persons on national security grounds, CFIUS. The US business in question is Pipeworks, a West Coast studio that Sumo acquired last December. While the national security consequences of a shift of ultimate ownership in Pipeworks to a Chinese company may not be readily apparent, CFIUS’s jurisdiction clearly embraces US businesses that collect 'sensitive personal data' of US citizens, which data seem to include those shared by participants in video games. Indeed, Reuters reported last May that Tencent had entered negotiations with CFIUS to avoid conditions being placed on its existing ownership of US games developers Riot Games and Epic Games.   

Further, the Sumo deal is conditioned on obtaining clearance of any mandatory notification under the recent UK national security legislation, the National Security and Investment Act 2021, that will arise pre-completion. While this legislation empowers the UK Government to reverse acquisitions of UK businesses from 12 November 2020, it has not yet established notification mechanics and so the Investment Security Unit of the Department of Business, Energy and Industrial Strategy does not need to be notified by the parties to the Sumo deal as of today. Indeed, even if the mechanics had been established already, video games development does not appear to fall within any of the seventeen sectors listed by BEIS for which mandatory notification will be required. If this is a correct interpretation of the list, BEIS may diverge from CFIUS in its view of the national security consequences of the sharing of personal data by video games participants. 

The Investment Security Unit encourages parties making offers before the notification mechanics have been established to contact it anyway for informal advice, and it would be interesting to learn whether the Sumo parties will consider it advisable to do this. 

For more on US national security legislation, please read our previous article, How Foreign Funds and LPs Can Avoid Filing Mandatory Declarations With CFIUS for Investments in US Critical Technology Businesses, or please contact Thomas Dick in our Corporate Law team on 07968 559217. Alternatively, complete the form below.

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