Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Theresa May says foreign buyers should not have an unfettered right to acquire U.K. companies in "strategic" industries. Such sentiment could easily slide into a protectionist policy that would be highly damaging to the U.K.

Britain's new prime minister seems to want to change the law to make government intervention in foreign takeovers much easier. She criticized David Cameron's former coalition government for nearly letting Pfizer buy AstraZeneca in 2014. She said the U.S. drugmaker was an "asset stripper" wanting to avoid tax.

U.K. For Sale
The value of takeovers of British companies by overseas buyers peaked in 2015
Source: Bloomberg

It's easy to find instances of foreign bogeymen. Pfizer, for example, is a financially driven deal machine. It made no secret of the tax advantages associated with a bid for AstraZeneca. In 2011, it shut a research facility in Sandwich in England. Food giant Kraft is another maligned predator. When buying British chocolate-maker Cadbury, the U.S. company promised to reverse a closure of a facility in the southwest of the country. Then it reneged because plans to shift the unit's production to Poland were too advanced.

But foreign takeovers in general have been good for the U.K. The arrival of U.S. investment banks after the Big Bang in 1986 brought needed professionalism to the Square Mile. The modern City of London wasn't built on old-boys networks and long, lazy liquid lunches. The car industry got a new lease of life from German, Indian and Japanese owners.

Where would Cadbury be had it stayed independent? Well, the Somerdale plant would still be shut. Cadbury's standalone strategy involved raising sales and profit margins -- highly ambitious and hard to achieve without job cuts. As for AstraZeneca, it was a bad advert for U.K. science when Pfizer approached. The productivity of its R&D was terrible. It was cutting jobs, including thousands of scientists.

Scientists: Adding and Subtracting
AstraZeneca has been cutting its global R&D headcount since 2010
Source: AstraZeneca annual reports

The threat of a takeover keeps management on its toes. Doubtless, AstraZeneca boss Pascal Soriot was motivated by that prospect. Would it be bad for British workers and the economy if AstraZeneca was sold to a foreign company? Yes, if that led to more permanent jobs losses in the U.K. than if the group stayed independent or maybe merged with domestic peer GlaxoSmithKline. It's not obvious why that should be the case. A poorly-performing drugmaker should not be bid-proof. Ideally, a healthy British pharma sector would absorb scientists who lose their jobs after a takeover. 

The U.K.'s two big pharma groups (Astra and GSK), its biotechs and its university research labs work well together right now. But the number of scientists working in the U.K. depends on whether healthcare employers want to base operations in the country. That in turn depends on the strength of its universities, its openness to migration, its tax regime for R&D. As home secretary, May attracted plenty of criticism that her clampdown on immigration was bad for science and higher education.

May was also silent on her immediate foreign takeover test: the London Stock Exchange tie-up with Deutsche Boerse. That's billed as a merger right now, although a likely shift of power to Frankfurt might make it look more like a German takeover by the time it goes through. Hopefully, May's reticence shows a willingness to think these matters through properly, despite the rhetoric. Protectionism was a latent force behind the Brexit vote. She should be fighting it not fanning it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net