Recall of business news stories in March focuses on bids and acquisitions involving UK businesses.
In January, Tesco’s announcement of its acquisition of wholesaler, Booker Group was the most noticed business news story. In February, Kraft Heinz’s tilt at Unilever was second most noticed business story of the month. This month Peugeot’s parent, PSA, acquired General Motor’s European operations – including Vauxhaull in the UK – and 21st Century Fox’s bid for Sky has been referred to the CMA (Competition & Markets Authority).
These are only the stories that people tended to notice. Dealogic records more than $62bn of deals involving a UK company in 2017, which is about $16bn more than the same period last year. A trader told The Times: “There are plenty of bid prospects in the UK. There are vague Novartis and AstraZeneca rumours and there is bid talk about BP. I reckon half of the FTSE must be on the list [of potential takeover targets] now and I think triggering Article 50 will only spur it on.”
What’s going on? Why do so many British companies seem to be in play?
When Britons voted to leave the EU sterling took a 20% hit in value and, though it has recovered a little, the pound looks set to stay weak until Brexit negotiations are settled. A weak pound makes British companies look cheap to foreign buyers.
Since the EU referendum vote in June last year, American, Chinese and Saudi tourists have been snapping up Burberry raincoats, Fortnum & Mason tea and Liberty fabrics, because a low pound means their dollars, yuans and riyals go much further. In the same way, foreign companies are queuing up for cheap deals on British companies.
This is the free-market in action and Britain, quite rightly, has been one of the biggest advocates of free markets since the 1980s. However, it is important to recognise that free markets do not always deliver the best outcome. Totally unfettered markets tend towards monopoly, which is damaging to most in the long run.
It’s hard to see how opportunistic purchases of good British companies on the cheap will benefit the UK. If anything, it tends to put British jobs at risk. While PSA has not said that it will close Vauxhall plants in the UK, it is clear that UK jobs will be harder to protect in the future as PSA, which now has more production capacity than it needs, comes under pressure to protect EU jobs rather than British ones. This will be made even more acute if Britain cannot avoid trade tariffs on cars made in Britain.
Last year Theresa May criticised David Cameron’s government for almost allowing the “asset stripping” US drugs company Pfizer to take over the British company AstraZeneca. But Mrs May now appears to be soft-pedalling on limiting foreign takeovers except on the grounds of national defence, media plurality and financial stability.
In the current weak pound environment, May has the difficult task keeping Britain ‘open for business’ without selling the ‘family silverware’. Even if the May government negotiates a ‘good Brexit’ for business, allowing strong British businesses to be sold to opportunistic overseas buyers, will leave its reputation in tatters.
Being open for business shouldn’t mean accepting the fund manager’s obsession that the only thing that matters is price. Price is not everything. Reputation matters. People care about jobs. They are concerned about business ethics. Workers take pride in goods made by British companies which put the interests of Britain and the communities where they operate at the front of the queue.
It’s time for May to beef-up the CMA’s powers to ensure that it can block bids on the grounds of concerns about the impact on jobs, ability to export, or erosion of scientific and academic research. Without intervention, the free-market is likely to deliver a bad outcome for Britain. Bankers and fund managers, who know the price of everything and the value of nothing, will take advantage of the weak pound and sell the ‘family silverware’.
The Prime Minister should add an addendum to her Brexit negotiation mantra that ‘no deal is better than a bad deal’.
When it comes to selling British businesses to overseas buyers, ‘no sale is better than a bad sale’.