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Amid chocolate spat, is UK souring on M&A?

Source: Reuters - Tue 26th Jan 2010

Stung by Kraft's pursuit of Cadbury, and perhaps influenced by a looming election, Business secretary Peter Mandelson is calling into question Britain's decades-long openness to takeovers.

If sustained, the changing tone could help dissuade some foreign firms from making acquisitions in what has been one of Europe's most open markets - despite rules from Brussels that make it hard for states formally to block takeovers, except on national security or competition grounds.

The shift was one of the biggest issues facing UK mergers and acquisitions (M&A) practitioners, said Scott Moeller, at the M&A Research Centre at Cass Business School in London.

"This appears to be the UK taking on more of an interventionist, and I would even say protectionist nature" Moeller said.

"That would be quite common and expected in France or Germany but has not been in the UK, under both the Tories and Labour, where both parties have felt that these were decisions that need not have the intervention of the government."

Kraft, a U.S. food group, has been pursuing a $17.2 billion (10.5 billion pound) hostile takeover of chocolate maker Cadbury for months, and has until January 19 to make a final raised offer..

Mandelson, who has previously warned Kraft it should not seek a "fast buck" and said that overseas headquarters may prove a long-term "disadvantage" to UK manufacturing, called in top investors this week to discuss their relationship with the companies they own.

He told the investors it wasn't "about foreign versus domestic ownership" but "about responsible management and ownership with a real eye on the long term as well as the short" according to speaking notes. 

"For the government to come in and take sides in a commercial deal is a dangerous step and one that certainly needs to have much greater discussion" Moeller said.

In recent years, Britain has allowed deals in sensitive sectors such as airports, water and nuclear power, and has alongside the Netherlands been one of Europe's most open M&A markets. UK politicians have tended to refrain from intervening in takeover battles, even verbally.

In 2006, Spain's Ferrovial acquired British airports operator BAA, while Australia's largest security firm Macquarie led a group of investors that bought Thames Water from Germany's RWE that same year.

And nuclear company British Energy was sold to French energy firm EDF in 2008.

But in a sign that sentiment was changing, Richard Lambert, head of the country's most powerful business lobby, last year suggested new shareholders in a company, such as hedge funds, should be barred from approving a takeover.

"This is part of a global shift in sentiment away from quite such open markets. But it's also probably down in part to the fact there's a general election in a few months" said David Barnes, global head of corporate law at Linklaters.

The change in tone may not last: an election is due by June and the Labour party trails in opinion polls, with the Conservatives more open to free markets. The Conservatives had no immediate comment on Friday.


In every year of the past decade, Britain made up at least a fifth of European cross-border M&A, and sometimes a lot more - it hit a peak in 2004 at 45 percent, according to Thomson Reuters data. 

The example of France, where the Elysee has stopped foreign takeovers and engineered mergers to create national champions, shows how countries can shape the corporate landscape.

But M&A experts say Britain - with far fewer cross-shareholdings and state holdings - is markedly different.

"France ... has a degree of intervention completely alien to us" said Stephen Cooke, head of M&A at law firm Slaughter and May. "Most intervention there has not necessarily had a legal basis but has relied on the veiled threat of an unfriendly administration."

The French state for instance brokered the merger of Suez and GDF to create GDF Suez, a deal originally designed to fend off a bid from Italy's Enel for Suez.

Prevailing upon fund managers to think years into the future may also prove difficult.

Hedge funds say they make stocks more liquid and point out that in order to accumulate positions in takeover targets, they often buy stock from supposedly long-term institutional investors who are happy to sell out.

Cooke at Slaughter and May said persuasion alone would not be enough to prompt investors to take a much longer viewpoint. "What would need to happen is a structural change - such as tax rules to encourage long-term shareholding" he said.

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