Openness to overseas talent has helped us beat larger foes
Protection is a loaded word for British firms, who are generally better off left alone by our leaders to prosper in the private sector
For eighteen months, hardline Europhiles have applied a simple algorithm to every economic development. Bad news? “Because of Brexit!” Good news? “Brexit hasn’t happened yet!”
Even the most monomaniacal Remainers, though, struggled to blame Brexit for Unilever’s decision to consolidate in Rotterdam. “Let me categorically say that this had nothing to do with Brexit,” declared the company’s chairman, Marijn Dekkers.
The real motive, as every business journalist knows, is that the AngloDutch company had been spooked by last year’s $143billion (£102billion) takeover bid by the American food giant Kraft Heinz. Unilever’s joint listing in Britain and the Netherlands made it vulnerable to future bids and, since British company law makes acquisitions easy, its managers decided to seek the relative protection of the Dutch system.
“Protection” here is a loaded word. While it is usually in the interests of managers to avoid takeovers, it does not follow that it is in the interests of shareholders, employees, customers or, indeed, the country at large.
We should be proud to have what Sir Vince Cable tetchily calls “the most permissive takeover rules in the world”. They keep our economy open, our investors happy and our managers on their toes.
What the Lib Dem leader really means is that British ministers have only limited powers to tell private companies what to do. Since private companies are usually better judges of their own interests than politicians, this relative freedom has tended to make Britain better off.
Ah, you say, but what about strategic interests that go beyond mere dividends? What if the company in question is a big regional employer, or an iconic British brand name, or an important defence contractor? The answer, surely, is that these are precisely the cases where we should want maximum efficiency and profitability. The phrase “too important to leave to the market” is one of the most moronic in politics. British Leyland was deemed too important to leave to the market. How did that work out?
There is currently a hostile bid for the engineering company GKN by the investment firm Melrose. GKN ticks all the above boxes: an important West Midlands employer with a 259-year history that supplies civil and military engineering. Inevitably, politicians are fretting and frothing. In their imaginations, honest workers in Redditch are somehow being sold out to asset-stripping vultures in Hermes ties. All the clichés have come tumbling out. Jack Dromey, a local Labour MP, even described GKN employees as “the salt of the earth”.
But when we strip away the hackneyed phrases and the bogus military language of “hostile”, “protect” and so on, what are we left with? Melrose is offering the owners of GKN a choice between two management teams. If GKN had been performing strongly, the situation would not have arisen. It was precisely because confidence in that firm was falling (along with its share price) that Melrose saw an opportunity to turn things around. That’s what Melrose does: it buys failing companies, cauterises the gashes through which their profits are leaking and finds them new owners.
In doing so, it offers a service, just as a cleaner or an accountant offers a service. In this case, the service is the improvement of management and the optimisation of investment. If Melrose failed in these tasks, it would lose money. So far, though, by and large, it hasn’t: it has made around £5billion for its shareholders. It is true that, in the engineering sector, many efficiency savings come from automation. This has nothing to do with mergers or restructuring. Rather, it is a product of technological change. Thirty years ago, GKN was employing 70,000 people in Britain. Now that number has fallen to 6,000.
What of the argument that strategically important firms ought to be British-owned? That argument doesn’t apply in this case. Yes, GKN is listed in London – as it may be again following any improvements, since Melrose is looking at the option of another flotation – but that listing says nothing about the nationality of its shareholders. Indeed, at the moment, many of its owners are “merger arbs” – small investment funds which specialise in predicting the impact of a takeover on share prices.
Even if that were not the case, though, the idea that British ownership is always good for British workers has been tested to destruction. To return to the British Leyland precedent, look at the success of Mini or Jaguar Land Rover under overseas ownership. They are still, to all intents and purposes, British manufacturers, making cars in this country, but they have benefited from the expertise of new bosses.
During the mass privatisations of the Eighties, Enoch Powell was asked how, as a champion of national sovereignty, he could be so sanguine about British energy companies falling into foreign hands.
He replied that Britain had largely built the railway network in Argentina, and a fat lot of use that had been during the Falklands War. Our openness to overseas talent has helped us defeat many larger and more populous foes down the years. If our leaders want to ensure that we continue to weigh in the counsels of the world, the best thing they can do is stand aside and let our private sector prosper. This applies, too, to Labour MPs who want more public spending.
As Enoch Powell also used to say, you can’t tax a loss.
‘They are still British, making cars in this country, but have benefited from the expertise of new bosses’