UK-Australia trade deal could mean a shopping spree for British companies

A new free-trade deal between the UK and Australia should lift restrictions on company ownership. Matthew Lynn outlines his buy list for UK firms.

Despite fierce resistance from the agricultural lobby, the UK looks set to sign a substantial free-trade agreement with Australia, and one that should be a template for deals across the rest of the world. Once that is completed, we should see a lot more trade between the two countries. But we might see something more important as well: a round of takeovers of Australian companies by British ones – because there are lots of tempting targets. 

Snap up an airline or a bank

An Australian trade deal won’t, of course, be transformational. Its economy is not huge. With a GDP of $1.4trn, it is about 40% of the size of the UK, and far smaller than either the EU or the US. It is unlikely Australia will be selling us vast amounts of stuff, given the distance it will have to travel. Nor will we suddenly be selling vastly more products to them, for the same reason. It will be a decent market for British firms, yet hardly likely ever to be a crucial one. 

Except, that is, in one sense. Right now, there are restrictions on foreign ownership across a range of industries, mainly because of worries that China might buy up the whole country if it was allowed to. A trade deal should remove all of those (if it doesn’t, it should be renegotiated). British businesses should therefore not just be looking at selling goods and services into the market, but at taking over companies there as well. There are five obvious targets to start with.  

First, airlines. In line with many other countries, Australia places ownership restrictions on its main national airline. Perhaps that was understandable in the past. Countries used to think it was important to control routes into and out of the country and, in the wake of Covid-19, it is unlikely they will give up on that completely. Even so, a free-trade deal should make a takeover possible. If so, Qantas would surely be a natural target for IAG, which already owns British Airways and Iberia. That really would be a global airline. 

Second, banking. Both Lloyds and Barclays need to find a way to grow and Australia has a successful but mainly local finance industry. National Australia Bank could potentially be a great fit for either of those, although HSBC might find its links to China made it an unwelcome suitor no matter how much it might like a base in Australia. Third, in infrastructure, Sydney Airport Holdings, with a value of slightly over £8bn, would be a great fit with BAA, with its airports across the UK: plenty of people would be flying from one of its hubs to the other. Fourth, in retailing, Woolworths might have long since disappeared from the high street on this side of the world, but it is still a huge business in Australia, where it is mainly a supermarket grocery chain. It would surely make a tempting target for Tesco, now that it has recovered sufficiently from its problems in the UK market for it to start expanding again, or even for Sainsbury’s or M&S. Finally, Australia has a surprisingly strong local pharmaceuticals and biotech industry. CSL might well prove a natural fit with GlaxoSmithKline or AstraZeneca. 

Expect two-way traffic

There might well be some traffic in the other direction too. Lots of Australian entrepreneurs have built major businesses in the UK over the last few decades – Rupert Murdoch, for example. Its retailers and banks may well want to make acquisitions here. The important point is that the Australian and British economies are natural partners. They have similar legal structures and, perhaps more importantly, commercial cultures. British companies are likely to understand instinctively how an Australian business works and vice-versa. For a business from the UK looking to expand, Australia is a natural base and a springboard into the fast-growing Pacific. For Australian firms, the UK is a far bigger market than their own and while it is not the starting point for the European market it once was, it is still a hub for the Atlantic. Trade deals are often thought of as improving the flow of goods and services. The relaxation of ownership restrictions can often be far more important. 

Recommended

Kieran Heinemann: the history of shareholder capitalism
Investment strategy

Kieran Heinemann: the history of shareholder capitalism

Merryn talks to Kieran Heinemann, author of Playing the Market: Retail Investment and Speculation in Twentieth-Century Britain, about the history of t…
17 Sep 2021
Cryptocurrency roundup: litecoin blunder, cardano update and bitcoin mining in Laos
Bitcoin & crypto

Cryptocurrency roundup: litecoin blunder, cardano update and bitcoin mining in Laos

Saloni Sardana looks at the week’s biggest stories in the world of cryptocurrencies.
17 Sep 2021
Why it pays to face up to your investment mistakes
Investment strategy

Why it pays to face up to your investment mistakes

Buying stocks can be a complicated business. But selling stocks can be tricky, too – even if you sell for the right reasons. Max King explains how to …
17 Sep 2021
With the right political will, inflation can be defeated
Inflation

With the right political will, inflation can be defeated

Governments and central banks can easily control inflation, says Merryn Somerset Webb – they just need the will.
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021