Why the fuss over foreign takeovers?
Published 23/04/2010 | 11:00
What is Britain coming to? First the US buys our favourite chocolate company and now Germany's Deutsche Bahn has snapped up Arriva, one of our biggest bus and rail operators.
Seriously though, will we see the sort of outcry over the Arriva deal that Kraft's bid for Cadbury prompted? Probably not: partly as this is an agreed deal rather than a hostile takeover, but more because Arriva does not prompt the sentimentality about the past that was evoked when Cadbury was sold.
This is not rational. Much as we might love Cadbury's delicious chocolate, we can hardly make a logical argument for its strategic importance to the nation. Arriva, on the other hand, is a vital cog in our infrastructure — a German State-owned company will soon have the power to muck up the journeys of millions of Britons to and from work, for example.
What's interesting about both these deals is the only authority with any power to block them is based not in Britain, but in Brussels, in the offices of the European Commission. Since both Arriva and Cadbury have substantial European interests, it is the responsibility of the Commission to decide on whether bids for them should be allowed to proceed.
The truth of the Cadbury takeover was that while opponents of the deal expended considerable time and energy lobbying the British government for an intervention, their efforts would have been more appropriately focused on Brussels — though they would have had to come up with a competition argument to prevent the sale going ahead.
Similarly, should Arriva's 2.5 million bus and train customers — or anyone else — decide they don't fancy getting to work the German way, Brussels is their only hope of a block to Deutsche Bahn's bid.
In the wake of the Cadbury affair, Labour's manifesto floated the idea of extending the “national interest test” — which currently allows the Government to block takeovers of defence companies — to sectors such as utilities and infrastructure.
Doing so would be a mistake. There is no evidence to suggest the takeover of British companies by foreign acquirers has damaged the national interest (some deals have worked out better than others, just as with domestic-only purchases) and leaving the decision making process with the EC's competition authorities — which effectively now covers all deals of any size — means we get a dispassionate ruling.
The moment the Government extends the national interest test, the decision-making process that governs foreign takeovers of British companies will be politicised, with high-profile campaigns to stop certain deals.
Even in the abstract, that's a bad idea, but since Britain buys more corporate assets overseas than it sells to foreign buyers, the practical effect of such a policy — with protectionism heightened elsewhere too — would be net damage to our economy.