Why Britain’s vulnerable to foreign raiders
The weakening of the pound following Brexit means that British companies can be snapped up much cheaper than before the referendum.
Of course, nobody buys a company simply because it’s cheap. But: if a foreign company was already interested in acquiring a British firm, then this currency tailwind could get them over the line and encourage them to make a bid.
The weaker pound has suddenly made even the country’s flagship companies more realistic takeover targets.
American food company Kraft Heinz tried to acquire Anglo-Dutch rival Unilever in February.
The attempt ultimately failed but the coast is not yet clear for Britain’s third biggest company. More firms may be lurking in the shadows.
This is why Unilever has been looking to the government to beef up the UK Takeover Code to keep companies from falling into foreign hands.
Could Britain’s ‘crown jewels’ really be sold on the cheap?
“I think we are going to see more very large-cap M&A [Mergers and Acquisitions],” the FT quotes Deutsche Bank’s Alasdair Warren.
“This will partly be driven by relative currency values and people reacting opportunistically to the dislocation in values that has occurred because of Trump and Brexit, but also because people have realised that despite the increase in political turmoil, the world has continued growing.”
If huge British enterprises will indeed be targeted by foreign competitors, it might not be the best thing to happen to Britain right now.
Britain’s flexible labour laws have their advantages, but they could also make many jobs precarious.
Free market advocates will argue that markets can regulate themselves and don’t need government intervention. As libertarian Ron Swanson on the TV show Parks and Recreation would say: “Capitalism is God’s way of determining who is smart and who is poor.”
And, sure, foreign takeovers have the potential of knowledge and technology spillovers. They don’t necessarily have to be a bad thing.
However, it becomes a different story when these large takeovers lead to a great number of jobs hanging in the balance.
PSA Peugeot Citroën taking over General Motors’ European business, which includes Vauxhall, is a case in point.
Vauxhall-Opel employs 4,500 workers in its car factories in Ellesmere Port and Luton, making Britain its third biggest production wing in Europe after Germany and Spain.
Britain’s relatively relaxed labour laws could actually work against the country in this case as it’s much cheaper to make people redundant in Britain compared to Germany, where it costs three times as much.
Britain’s labour laws make it both easier and cheaper to lay off workers compared to other European countries. In fact, redundancy pay in Britain is among the worst in the EU. (Or among the best if you’re a company looking to scrap jobs.)
The closure of Goodyear Dunlop’s production plant in Wolverhampton in 2015 may be a precedent.
As it was still a productive factory, Unite regional secretary Gerard Coyne implied the decision was primarily motivated by Britain’s favourable employment laws compared to those in France and Germany.
With a new owner looking for cost reductions and without historical or national ties to production plants, foreign takeovers could negatively impact Britain.
In the case of Vauxhall, Business Secretary Greg Clark promised the government would do all it can to protect the car maker’s jobs in Britain. In addition, ministers already introduced stricter rules regarding foreign investment in critical infrastructure in September 2016.
It’ll therefore be interesting to see if the government will play a more active role in foreign takeover bids for British companies in the future.
To protect British jobs, the government may be forced to fend off foreign companies interested in ‘national treasures’ or converge employment laws more towards the European average.