A Qatari fund is reportedly planning an £8bn bid for M&S. Should foreign takeovers of UK firms be welcomed or worried about?
Yesterday news broke that a Qatari sovereign wealth fund is planning an £8bn bid for Marks & Spencer. The Qatari Investment Authority is lining up “a powerful bidding consortium”, according to The Sunday Times, which reported the story. In the days before, shares had been surging as murmurings of a bid for M&S spread across the City.
Should we care if one of Britain’s most beloved brands falls into foreign hands? Let’s do a quick stock-take of just how many of our so-called national treasures are, in fact, foreign-owned: Boots, The Savoy, Harrods, Cadbury, The Dorchester, Jaguar Land Rover, Asda, Thames Water, Weetabix, Tetley Tea, Powergen, O2, P&O Ports, the British Airports Authority, ICI, Selfridges, Corus (formerly British Steel), The Shard – I could go on, and for quite some time too.
Many of these companies slipped into foreign ownership in the last decade. As The Mail’s City editor Alex Brummer has commented, and having written a book on foreign takeovers he should know, the trend seems to be on the up. In 2009, £30bn of British enterprises were acquired by foreign companies, he notes. In 2010, that value grew to £54.5bn.
The London Stock Exchange boasts on its website that it “is the most international of all the world’s stock exchanges, with around 3,000 companies from over 70 countries admitted to trading on its markets”. Two in five companies listed in the UK are foreign-owned.
Again – should we care? The general public are likely to be outraged at the thought of M&S losing its home-grown ownership, just as they were enraged by Kraft’s takeover of Cadbury.
Most in the City, and free market purists, will argue that our strength as an economy is our openness and internationalism, and that the inward investment such takeovers bring to the UK is a huge economic boon – particularly at times like these. All that juicy capital from the takeover gets reinvested back into British businesses, and our economy benefits.
They argue that letting a patriotic fondness for our favourite “British” brands get in the way of commercial and economic sense is counterproductive – not to mention rather outdated in today’s globalised world.
They have a point. It is important not to confuse a nationalist nostalgia with national interests. In plenty of instances, foreign ownership has been the saviour of British businesses. It has prevented companies from collapsing, protecting jobs and tax revenues, and injecting capital into the economy at the same time. The new multinationalism of large firms brings foreign talent to our shores, benefiting our workforce and so again benefiting our economy in various direct and indirect ways.
Our automotive and financial services industry – undeniably two bastions of our economic identity, whether you like it or not – have been greatly strengthened by foreign ownership, and are arguably in large part dependent on it.
But it would be foolish to suggest that all foreign takeovers of British companies have been beneficial to our economy.
Kraft’s takeover of Cadbury in 2009 stands as one particularly painful example of a foreign takeover that wasn’t so great for us, after all. CEO Irene Rosenfeld promised she would not close a plant near Bristol if the deal was done. She trashed that promise almost immediately after the acquisition, axing 400 jobs at the plant, and a couple of hundred other jobs elsewhere not long after. She moved Cadbury’s headquarters to Switzerland, meaning that the UK lost out on both significant tax revenues and top managerial talent that would otherwise have been based here.
And therein lie several rubs. It makes sense for foreign companies to cut jobs in the UK rather than in their home companies if they need to make savings, because their home governments and public will care less about their dabblings overseas.
Foreign companies are in theory also more likely to move headquarters overseas than British companies because, again, they face less political pressure if they do so than in their home countries, or than British-owned companies would. Alliance Boots relocated its HQ to Switzerland from Nottingham in 2009 following its takeover by America’s KKR, for example, while Santander Group’s headquarters are in Spain where previously Abbey’s was in the UK.
When those HQ moves happen, we are triply economically dented: we take the knock in tax revenue, we are sapped of the managerial talent that was based here, and we suffer the ripple effect of lost contracts among the UK-based professional services firms that previously did business with the UK-based HQ.
So we find ourselves stuck. Foreign takeovers can be an economic stimulant on several counts – but if they are handled with little regard for the UK’s economic interests, they can also suck away at our talent base, business activity, jobs and tax revenues on each of the same counts.
Today the government has announced it will accept 81 of the 89 recommendations Lord Heseltine proposed in November in his plan for stimulating the economy. One of his suggestions was to restrict foreign takeovers of UK companies, permitting them only if they are in the national interest.
If the government adopts this measure and examines each foreign takeover bid more stringently, keeping the national interests firmly in mind, Heseltine’s suggestion might be just what we need.
Trendwatch: Qatar buying up UK assets
Qatar’s sovereign wealth fund, through its various investment arms, already owns Harrods, One Hyde Park, the Olympic Village, the Shard, Chelsea Barracks, 26% of Sainsbury’s, and significant chunks of Heathrow Airport, Barclays, Camden Market and the London Stock Exchange.
Read more in our analysis of whether we should care that Qatar owns increasing amounts of UK and London assets and infrastructure.
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