Is it always good to be ‘open for business’?
2 Jun 10
If free enterprise is a good thing, there’s an argument that regulators should seek to interfere as little as possible with the market. On the other hand, if other countries protect their major corporates against takeover bids while we don’t, it’s clearly not a level playing field
Two news stories this week illustrate the dilemma when it comes to regulating mergers and acquistitions. First, despite our economic troubles, the UK through 2009 was still the number one destination in Europe for foreign direct investment (FDI), according to research by Ernst & Young. EY also calculated that FDI last year created more than 20,000 jobs in the UK, so clearly it’s something the economy cannot afford to turn its back on.
The other story is that the Takeover Panel is carrying out the most sweeping review of the M&A rules since the 1980s. While the Panel is an independent body, clearly it’s no coincidence that this has happened following a change of government and the appointment of a business secretary, Vince Cable, who has been an outspoken critic of City short-termism and speculation.
If any one case recently crystallised people’s views on M&A it was the £17bn takeover of Cadbury by US group Kraft. Controversial at the time, the argument was revived last month when the Takeover panel censured Kraft for making a promise it could not keep, to protect Cadbury’s Somerdale factory – in Somerset, in the south-west of England – from closure.
In the popular imagination it was the predator from the US that closed the factory down. In fact, the decision had originated with Cadbury’s UK management well before the takeover.
Foreign investment can be seen as a good thing when it creates jobs, and not such a good thing when it strips the UK of corporate headquarters and takes decision-making away so that companies are less accountable to their local community.
Finding a way to distinguish between the two will be a tough job for the Takeover Panel as it reviews the rules that, currently, make it all too easy for an acquisitive player like Kraft to set its sights on a UK business.