The true cost of the 'great British takeaway'

published 5 December 2006

UK plc once acquired overseas firms "with an adventurous swagger", say Dan Roberts and Iain Dey in The Sunday Telegraph. But these days, the boot is on the other foot. This year, 720 British firms worth a total of £138bn have been taken over by foreign buyers and another £26bn worth, including Corus (click here to download a free company report), Scottish Power (click here to download a free company report) and the London Stock Exchange (click here to download a free company report), are in play. Foreign companies spent £500bn (around half our national output) on UK firms over the past three years, compared to a flow of just £200bn the other way.

It's partly about the rise of corporate governance, Brian Magnus of Morgan Stanley told Conal Walsh in The Observer. "Great risk-takers", such as Christopher Gent, "don't really exist today because the Government has put them out of business". Firms are less adventurous, thanks to the bursting of the tech bubble and the ownership structures of UK firms, note Roberts and Dey. Institutional investors tend to dominate here, while in Europe large family holdings are more common. So once a deal is decided on, there is scant opposition. A favourable tax regime for foreign buyers both here and overseas also plays a part, while another key factor is protectionism abroad. Spain, Italy and France have all resisted purchases of their major firms, with France recently proclaiming yoghurt-maker Danone to be a national champion of strategic' significance.

Pulling up the drawbridge is not a realistic option; the UK has benefited greatly from the foreign money and talent trying to cash in on Britain's growth potential. But our policy of non-intervention isn't risk free, warns Alex Brummer in the Daily Mail. Research and development often moves abroad with a takeover, reducing future investment, while debt-funded deals, such as Ferrovial's takeover of BAA, can undermine a targets' financial stability. So far, few factories have been shut down and "important know-how" has stayed here, says Walsh. But in the next downturn, when foreign buyers have to ditch some businesses, the true social and economic cost of the "great British takeaway" may be seen. Small wonder the CBI wants the Government to ensure a level playing field for takeovers.