Jeremy Corbyn and Theresa May: Deal Breakers

Comcast's rhetoric shows how politics has changed the climate for M&A.
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Simon Dawson/Bloomberg
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What’s in it for Britain? That’s now the first question anyone buying a U.K. company needs to answer.

The polarization of Britain's public debate has meant taking over companies has become increasingly tricky for foreign bidders and hostile domestic buyers. The country may be one of the world's least protectionist markets in law, but buyers there need to make allowances.

Comcast Corp. has got the idea: its $31 billion proposal to buy broadcaster Sky Plc began with a love-bombing effort to head off the primary criticisms of overseas takeovers -- the loss of head office functions and the impact on employment in local areas.

Tune In For The Repeat

Fox's "statements of intent" in its Sky offer seem to have inspired rival suitor Comcast

Source: Fox offer announcement, Dec. 2016

The “intention” was to maintain Sky's headquarters, said boss Brian Roberts. The same went for the broadcaster's apprenticeship programs in the north of England and its technology hub in Leeds. Expect to hear a lot more respect expressed for that city if the takeover battle escalates.

These were no more than statements of intent from Comcast. What’s more, pretty much identical intentions were announced by Sky’s incumbent bidder, Twenty-First Century Fox Inc, back in December 2016 -- albeit without the same fanfare.

To differentiate its affection for the U.K. from Fox’s, Comcast could turn the intentions into binding undertakings should it formalize a bid. That would mean giving the specifics and putting a time-frame on delivery, with an appointed monitor.

If Sky’s board could extract that concession, it would be a significant moment. Only one deal has included such hard commitments -- Softbank gave undertakings relating to employment in its takeover of ARM Holdings Plc. But the sensitivity relating to Arm’s intellectual property and contribution to Cambridge is arguably greater than that around Sky’s entertainment programming and contribution to Osterley.

What's In It For Shareholders?

Comcast's informal proposal to buy Sky has exacerbated its share-price under-performance in 2018

Source: Bloomberg

British buyers aren't exempt from these considerations. The political mood has made hostile bids harder. Melrose Industries Plc's plan to buy GKN Plc, a longstanding member of the FTSE 100 index, and load the combination with debt had Labour leader Jeremy Corbyn spitting tacks last week.

Cutting the HQ, slashing jobs, exploiting cheap debt and selling off assets are common ways of making money in M&A. A bidder that surrenders these options might reasonably be able to ask the government for favors down the line. But having promised the earth, it also may not be able to pay the premium price needed to win over the target's shareholders.

Theresa May wants an economy that works for all. Corbyn last week argued for a public interest test for takeovers. Bidders should be on notice. Their “statements of intent” better be serious.


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

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    Edward Evans at eevans3@bloomberg.net

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