British business is easy prey
NO ONE seems to have told the private equity barons, US mega-corporations and Hong Kong tycoons circling the London stock market that August is holiday time.
This summer has seen a rash of takeover bids for British companies.
Two deals worth more than £5bn were launched last week. Greene King, the pub chain, is being bought for £2.7bn by Li Ka-shing, the Hong Kong business mogul. And Entertainment One, which owns children’s character Peppa Pig, is to be sold for £2.8bn to US toy giant Hasbro.
These deals follow a proposed ‘rescue’ of British Steel by Turkey’s military pension fund and the sale of defence firm Cobham to a US private equity outfit.
Several factors are coming together to make UK firms tempting meat.
Most obvious is the fall in the value of sterling since the EU referendum in 2016. This has made UK companies cheaper for foreign predators to snaffle.
It’s an irony that Brexit, which was meant to empower British business, is one reason swathes of it are being flogged off to overseas buyers.
To blame Brexit for it all, however, would be absurd. The UK’s takeover regime has always been liberal in comparison with other countries including France, which famously classed yogurt maker Danone as a strategic business that should have protection from predators.
That was widely mocked, but to be fair to the French, food security is actually quite important.
Similarly, the takeovers of Greene King or Entertainment One might not seem strategically vital to the UK but pubs are deeply woven into the fabric of national life, and Peppa is part of our burgeoning creative industries.
Another reason the UK corporate landscape is pockmarked with takeovers is that they have enmeshed in a toxic way with the high-pay culture.
Chief executives can make huge sums if they roll over to a predator.
Boss Darren Throop, for example, could receive £68m in the deal for Entertainment One and David Lockwood, the chief executive of Cobham, could share with other bosses a payout of £10m.
That isn’t much of an incentive to beat off bidders with a very big stick.
EVERY takeover is attended by a trail of camp-followers. Millions of pounds of shareholders’ money is paid out in fees to City investment bankers, lawyers and PRs.
To give a gauge, in the failed bid by doorstep lender NSF for rival Provident Financial earlier this year, the two spent £36m on these costs between them. All of it is money down the drain as far as investors and customers are concerned.
The ultra free-market line that takeovers
concern only shareholders is not realistic. Companies have a duty to others including customers, staff and society as a whole.
There is also the fact that the ultimate owners of companies include ordinary UK savers via their pension funds, whose interests are routinely forgotten or ignored.
I do not oppose takeovers per se, even though academic research suggests most destroy value. The threat of a bid is a way of keeping managements on their toes.
Being the chief executive of a company that has done so badly it succumbs to a bidder should be a mark of shame. Often, it is a payday.
There is an array of powerful interests who stand to gain from bids and very little in the way of resistance. Mainstream City shareholders are, with a few exceptions, feeble.
It has been left to Lady Cobham, a minority shareholder, to act as standard bearer for the defence of the company her family founded. Objections have been contemptuously dismissed by Lockwood as an ‘emotional response’ with ‘no logic’ and mere ‘noise’. Lady Cobham and her family could make money by selling out, but she is putting principles ahead of personal gain.
In the rapacious world of predator and prey, that deserves respect.