May Faces Calls to Tighten Takeover Rules After Kraft-UnileverBy and
Lawmakers urge her to expand exisiting public interest test
Pound’s fall since Brexit increases chances of foreign bids
“I use the expression sitting ducks, and I’d worry about who’s next,” Vince Cable, Business Secretary until 2015, said in an interview. “We have very weak takeover code in the U.K. The public interest tests are too narrow.”
Politicians of all stripes say more British companies may be vulnerable, exposed to a weakened pound that makes them cheaper to foreign investors. All this while May’s government is eager to show that the U.K. is open for business, even as it prepares to redraw its relationship with its closest trading partners in the EU.
The $143 billion offer, announced Friday, was then abandoned on Sunday. Even if May had wanted to act against the Unilever approach, her powers are limited.
Britain’s takeover code allows interventions only if competition, media plurality, national security or financial stability might be put at risk. The code should be extended beyond that, said Chuka Umunna, an opposition Labour lawmaker and the party’s former business spokesman.
“There is an argument for expanding that to cover transactions which will have a material impact on the economy and affect our research and development and innovation base, which is, after all, how we’re going to compete in the future,” Umunna told a panel discussion organized by the policy analyst ResPublica in Parliament on Tuesday.
Company directors should be “empowered to take a long-term view” so they “don’t feel that they must recommend to shareholders that they accept a takeover bid simply because in the short term they have been offered a high price,” he said.
It’s a point of view May might agree with. Last year, in one of only two speeches in her brief campaign to become prime minister, she identified Kraft’s 2010 takeover of Cadbury Plc as an example of the kind of deal that hurts staff in a target company and should have been blocked.
Alison McGovern, a Labour lawmaker whose district includes a Unilever plant, spent the weekend thinking about ways to fight the Kraft approach. While she was relieved the immediate danger passed, she wants a plan in place for the next time a foreign bidder comes calling.
“I would have liked to see us negotiate stronger powers to intervene on social grounds in any case, but given the Brexit vote, now would seem like a good time to work out a policy and a plan to do so,” she said. “A debate about when government should block and why is overdue.”
January was a missed opportunity when Business Secretary Greg Clark published an industrial strategy that was silent on foreign takeovers, according to Callum McCaig, business spokesman for the Scottish National Party.
“I was surprised there was nothing on foreign takeovers in the industrial strategy, given what Theresa May had said about protecting U.K. industry in large-scale mergers,” he said in an interview. “Still, I don’t think anyone would really like to see ministerial approval of every foreign takeover, because that would be unworkable and undesirable.”
“A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain,” she said.
Not everyone is keen on altering the current rules. Richard Fuller, a lawmaker with May’s ruling Conservatives and a member of Parliament’s Business, Energy and Industrial Strategy Committee, said the government “has the powers that it needs.”
“If we rush to legislation about public interest tests, then our perspective will be governed very much by the needs of the time,” he said. “And the needs of the time are more acute than would normally be required."
But the fall in the pound since Brexit isn’t a problem that is going away as the U.K. embarks on years of negotiations with sterling reacting to every twist and turn. Clark told Parliament on Monday that “we will be making suggestions as to how we can keep our merger regime up to date.”
“The longer the currency stays low, and the longer there’s a need for Britain to be seen to be open for business, there are going to be a lot more of these takeovers,” McCaig said.