Bad deal for British growth
ANOTHER leadingedge British technology company has fallen into Californian ownership. The £2.35bn takeover of Telecity by US data centre Equinix means that Britain and Europe’s foothold in computer hosting and the cloud is weakened.
The affable John Hughes, chairman of Telecity, felt he and his board had little alternative but to accept a price of 1145p per share, which is a 27.3pc premium to the pre-offer opening price and above Telecity’s peak price of 1024p in 2013.
But is it really that good a price? And is it the right deal for the UK when the economy is struggling to embrace new technologies and deal with a productivity shortfall?
Deals in the tech and computing sectors are coming through thick and fast at present, and the premiums getting ever larger.
In the biggest pure technology deal in the sector, US-listed Avago Technologies this week agreed to pay $37bn for rival Broadcom in the latest transaction involving companies that supply chips and parts for smartphones. The Broadcom bid sent the share of Britain’s chip and smartphone supply companies, Imagination and ARM, sharply higher. The bigger issue, as far as the Telecity deal is concerned, relates to how Britain wants its economy to develop in the coming years.
The UK has the software and the engineering to be a dominant computer hosting player in Europe.
That is why Telecity had been pursuing a Dutch partner, Interxion, to increase its reach.
The largest amount of Telecity’s turnover is generated in Europe, with the UK not far behind. In effect, all this is now being handed on a plate to Equinix.
Hughes argues that the intellectual property and best engineers will remain in Europe, but much of the experience of takeovers in the tech sector would suggest something different. The pull of California and Silicon Valley is extraordinarily strong. Britain is in a difficult place when it comes to productivity and this is expected to be a big theme of George Osborne’s summer Budget speech on July 8.
Output per hour worked in Britain currently is lower now than in 2007 and is flatlining.
In America, home to most of the digital and tech giants, it is 9pc higher than in 2007, and even in sclerotic France it is 2pc higher.
Admittedly, according to research done by the Economist, there are great differences among sectors.
Transport manufacturers, the makers of cars, planes and trains, are doing very well and have seen a startling 56pc more production an hour since 2009. That is largely because of new investment and an embrace of new technologies.
At the other end of the scale, the hospitality industry, government, finance and chemicals and pharmaceuticals have been laggards. The lack of investment in chemicals, a rust belt activity, is seen as the reason that pharma that does engage in huge R&D is among the stragglers.
The clue to higher productivity is greater investments and embrace of new technologies. Companies like Telecity, which offer advanced software services, ought to be part of the that mix. Elsewhere my colleague ( see Sun
derland on Saturday) discusses the trend towards special dividends. Such pay-outs may be attractive in the short-term but also demonstrate a dearth of ambition among companies that lack the courage to engage with the newest technologies and invest in the future.
Instead, they bow to the shorttermism of the stock market.
Technology takeovers coming from overseas ought to be scrutinised for their economic impact, as was the case in Britain’s past. The nation needs to re-embrace what Harold Wilson memorably called the ‘white-heat of technology’.
That means conserving and investing in our home-grown patents, R&D and software expertise.
Yellow carded
INVOLVEMENT of British banks Barclays, HSBC and Standard Chartered in the US Department of Justice probe into Fifa may look like minor league compared to some of their past offences, ranging from foreign exchange rigging to Mexican drug-money laundering and Iran sanctions busting.
Two of the three, HSBC and StanChart, have current non-prosecution or deferred prosecutions deals with the US for unconnected sins. Those could be placed in jeopardy by the Fifa indictments, leading to escalated penalties and ultimately a threat to banking licences.
They have good reason to fear.
Fuld’s farce
REFERENCE by former Lehman Brothers boss Dick Fuld to his former colleagues as ‘27,000 risk managers’ comes as close to farce as you can get.
If these were the people there to save Lehman from disaster, then they did a terrible job for the investment bank, for Wall Street and all those in the global economy that suffered heavy losses and a chilling recession because of the Lehman explosion.
This former master of the universe suffers from self-delusion on a grand scale.