Mergers Shouldn't Be Menages a Trois
Princess Diana famously remarked that there were three people in her marriage to Prince Charles once you included Camilla Parker Bowles, whom he later married. Companies seeking cross-border mergers in Europe need to be wary of ending up in similarly overcrowded relationships as governments start to demand dowries and a share of the marital bed.
U.K. Business Secretary Vince Cable said yesterday he wants to tighten the rules governing overseas takeovers of British companies so the government can enforce commitments on maintaining jobs and investments, which may involve "financial penalties in order to make sure that those commitments are binding." Cable said "the loss of R&D in pharmaceuticals is a very good example," after New York-based drugs company Pfizer went after London-based AstraZeneca earlier this year in a failed $117 billion bid.
The proposed takeover of Shire Plc by AbbVie highlights some of the absurdities of taking a national approach to global companies. Shire today said it's willing to consider AbbVie's fifth takeover attempt at a value of 31.4 billion pounds ($54 billion). Shire is officially based in Dublin, where only about 100 of its more than 5,000 employees work. AbbVie, currently registered in North Chicago, Illinois, plans to domicile the combined pharma company in the U.K., where Shire has fewer than 500 employees.
So the merged company will pay its taxes to the U.K. Treasury -- at the reduced rate of about 13 percent, compared with the 22 percent AbbVie currently pays in the U.S. -- yet there's no real workforce or investment for the U.K. government to get proprietorial about.
General Electric now finds itself in bed with France, which allowed the U.S. company to trump a competing bid from Germany's Siemens to pay $17 billion for the energy assets of Alstom SA on condition the government got a 20 percent stake in the venture. The maneuver "succeeded in keeping Alstom French," according to Economy Minister Arnaud Montebourg.
While energy security is a legitimate concern for any sovereign state, keeping a company "French," or any other nationality, is not. The relationship between GE and Alstom is likely to be sorely tested should the U.S. majority owner ever seek to do something the government deems un-French, such as closing factories, reducing its workforce, or any of the other normal business choices multinational companies make.
The U.K. government already has powers to intervene when takeovers have implications for national security, financial stability or over-concentration of media ownership. Moreover, any effort by politicians to hobble decision-making at an existing domestic company with dictates backed by the threat of future sanction would rightly be laughed at by any responsible board -- its fiduciary duty is to its shareholders.
Hamstringing companies by effectively setting quotas on employment or research and development is a bad idea, no matter where they are headquartered or to which country they pay tax. This drift toward protectionism needs to stop.
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