Should we worry about the sale of UK companies?
Foreign predators are snapping up major British firms. Should we be concerned? Or is the concern over foreign ownership nothing more than media hype?
Foreign predators are snapping up major British firms. Should we be concerned? Or is the concern over foreign ownership nothing more than media hype? Cris Sholto Heaton investigates...
Is UK plc up for sale?
If you believe the media hype, yes. Barely a week goes by without headlines screaming that a major British company is falling into the hands of a foreign predator. In 2005, there were 233 acquisitions in the UK by foreign companies, including the sale of telecoms group O2 to Spain's Telefonica for £17.7bn, China's Nanjing Automobile picking up the remnants of MG Rover, and France's Saint Gobain winning a bitter fight for building materials group BPB. This year has already seen the sale of glass-maker Pilkington to Nippon Sheet Glass and Spain's Ferrovial making a hostile £8.75bn offer for airports operator BAA.
Is it really that one-sided?
Far from it. Last year, UK companies made 335 acquisitions abroad, worth £30.9bn (they also made 90 sales worth £9.8bn). But there were few big, high-profile deals in the list, so foreign acquisitions of UK firms were worth more a total of £49.9bn and generated more newsprint. What's often overlooked is the long-term trend. While overseas acquisitions in the UK have outweighed UK firms' deals abroad for the last two years, the balance since 1987 has been heavily in the opposite direction (see graph below). In the late 1990s mergers and acquisitions boom, UK companies had a reputation for aggressive deal-hunting abroad think back to BP snapping up Amoco and Arco, Vodafone buying Airtouch and Mannesman, and Zeneca's merger with Astra, among many others.
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So why are the predators now the prey?
Several reasons. Firstly, it's unsurprising that having spent billions during the last boom much of it wasted UK bosses are vetting big deals carefully. Meanwhile, UK companies have become more attractive to foreign buyers. Interest rates in many countries, particularly in Europe, are low, meaning that the cost of debt is cheap. UK stockmarket valuations are also low compared to many other bourses, despite companies being highly profitable and having commanding positions in global markets. And, of course, there's also the UK's much talked-about openness to foreign investors.
Is the UK really more open than other countries?
Yes. The less-regulated Anglo-American-type economies have always been less concerned about cross-border mergers than European ones. Compare the UK's response to these foreign deals with the storm that resulted when Pepsi tried to buy France's Danone. Many European countries are trying to build national champions' and scaring off foreign bidders with anti-takeover legislation. Even the US had an attack of protectionism when Dubai Ports World wanted to take control of some of its ports and Chinese oil firm CNOOC tried to buy Unocal. The UK is the most open major economy at present, although some smaller ones, such as New Zealand, also have a very laissez-faire attitude. However, questions about this policy are now being posed here, particularly regarding a possible bid by Russia's Gazprom for gas-supplier Centrica.
What do supporters say?
That a liberal approach benefits everyone. Letting foreign companies buy into the UK increases competitive pressures, encouraging innovation, investment and good management practices. The statistics bear these arguments out. Researchers at the London School of Economics found that US-owned firms in the UK tend to have higher productivity than UK-owned ones, which they attribute to better management and more effective use of technology. Employees also gain. Nottingham University researchers found that wages for both skilled and unskilled workers usually rise after a takeover by US or Asian companies as these firms share gains from improved business performance.
But could these sales damage national security?
There are certainly times when foreign ownership could be a security risk, but in practice it's rarer than protectionists suggest. For example, if Centrica were bought by Gazprom, its supply network would still be in the UK and subject to the same regulatory controls as before. There are real reasons to be concerned about Europe's growing dependence on importing Gazprom-controlled gas from Russia, but ownership of Centrica would not have any effect on this.
What are the other issues?
Many people instinctively feel that foreign ownership of a firm makes the UK poorer, as if hard assets are physically being taken out of the country. But this asset-stripping model doesn't fit the reality of the modern global economy the businesses remain in the UK, still employ UK staff and often generate increased investment from the new owners, benefiting the economy. However, the ability of multinationals to juggle profit and debt between subsidiaries may mean a lower tax take for the Government.
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