Economic nationalism is an infectious business
Takeovers are becoming the object of political whim, and it’s a deeply unhealthy development
Until a few months back, scarcely anyone outside the automotive and aerospace sectors had even heard of GKN. A £8.1 billion hostile takeover bid by the break-up specialist, Melrose, has focused political attention on this neglected relic of Britain’s once mighty engineering industry as never before.
Up went the cry that at all costs this underappreciated “jewel in the crown” of British industry must be saved for the nation, never mind the fact that its chief executive is American, the bulk of its employees and shareholders are based overseas, and that the bidder is, er, a British company. Odder still, by applying a version of what used to be known in the City as the “Pac-man” defence (after the computer game), whereby the defending company adopts the bidder’s strategy and similarly commits itself to break-up and downsizing, GKN has left everyone wondering what they were trying to protect in the first place.
Forced by the Government to guarantee jobs and investment, the allegedly asset-stripping Melrose looks in some respects a better custodian of the business than GKN itself. Rarely has the case for more overt preventive action looked more confused or lacking in justification. In the end, it did not succeed; Melrose yesterday scraped home to victory. But the affair has left its mark nonetheless, and not in a good way.
When the financial crisis first hit, it fast became an article of faith that this seismic event would fundamentally change our way of thinking about laissez faire economics, ushering in a period of much more interventionist government. Yet nearly 10 years after, the big surprise is not how much things have changed as quite how little the dial has shifted.
These things can, however, be on a long fuse, and one area where we are seeing a growing appetite for politicisation is the takeover scene. This is far from being a healthy development. If takeovers become the object of political whim, it undermines some of the key attributes of the market-based economy.
This is not to argue for a complete free-for-all, or to defend the distasteful and frequently destructive business of asset stripping takeovers. One of the worst I’ve ever witnessed was Hanson Trust’s hostile takeover back in the early 1980s of the Ever Ready batteries business, a fine company that had been investing heavily in the latest battery technologies. The only bit of the marketing and R&D budget to survive Hanson’s butchery was sponsorship of the Epsom Derby, allowing Lord Hanson’s partner in crime, Gordon White, further to indulge his passion for horse racing. With Ever Ready stripped down to the last light bulb or otherwise sold off, it transpired that White had been secretly running his own racehorses on the company through a couple of murky offshore trusts called Cheval 1 and 2.
Little if anything of Ever Ready survives. Shamefully, Britain is left trailing other advanced economies in the wider development and manufacture of battery technologies. The tragedy is that the same mentality seems to pervade the economy as a whole. Progressively starved of investment, many firms are routinely run for cash, with management bonuses riding on its delivery.
The intervention of Greg Clark, the Business Secretary, in the GKN bid battle, requiring cast-iron guarantees on jobs, R&D spending and domicile, was therefore understandable. The interesting thing is, however, that there were virtually no grounds, other than faux political outrage, for his demands. In intervening, two sacred principles have been breached – the right of investors and management to determine how a company is run as they see fit, and that politicians stay out of the process unless there are clear-cut competition issues involved. In this case, there were none.
Increased politicisation of competition and mergers policy is by no means confined to Britain. We also see it in the US, where President Donald Trump recently blocked a bid for Qualcast from Singapore’s Broadcom on almost wholly spurious “national security” grounds. There may well be genuine reasons for threatened antitrust action against Amazon, but nobody believes that would be the primary motive if Mr Trump proceeds. Rather it would be as a way of getting back at Jeff Bezos, Amazon’s chief executive and the owner of the Trump hating Washington Post.
Similarly in the EU, where out of the blue Margrethe Vestager, the Leftleaning European Competition Commissioner, recently renewed her threat to break up Google. By what process and right does she issue such threats? Or is it merely playing to the gallery of popular hostility to the tech giants, now apparently even more loathed than the bankers?
The incoming tide of economic nationalism, of pandering to populist sentiment, has begun to infect everything, even, it seems, such one-time oases of free market thinking as competition policy. Markets often work imperfectly, but it is a slippery slope when we sanction the politicians, however marginally, to allocate capital instead.
FOLLOW Jeremy Warner on Twitter @jeremywarneruk; READ MORE at telegraph.co.uk/opinion