Recent failed attempts by Kraft Heinz to bid successfully on UK giant, Unilever, have reignited debate over the Government’s role in the foreign takeover of UK firms. The takeover of iconic British firm Cadbury by American giant Kraft Foods in 2010 sparked controversy, with many calling for Government intervention in the deal. Lynne Jones, MP, expressed concerns for British firms ‘that are well run and have good prospects for retaining high-value-added functions in the UK, creating jobs in research and innovation’.
Following the failed £115 billion bid by Kraft Heinz in February 2017, Business Secretary, Greg Clark, has promised to review the response of the Government to foreign takeovers of UK firms. This move mirrors Theresa May’s pledges in July 2016 to re-evaluate legislation on foreign takeovers, after the American pharmaceutical giant Pfizer attempted to takeover UK firm AstraZeneca. May declared ‘A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain’.
Despite this clear stance on protecting the integrity of British firms, the Government quickly approved a £24 billion bid by Japanese firm SoftBank to purchase the UK’s biggest technology company, ARM. Arguing that the move was in the UK’s national interest, the Prime Minster stated that the takeover was a ‘vote of confidence in Britain’— despite claims by the co-founder of ARM that the firm represents ‘the last British [technology] company that has a global reach’.
At present, the Government holds powers to block foreign takeovers of UK companies only on the grounds of national security; financial stability; and media quality, plurality & standards, under section 58 of the Enterprise Act 2002. It is therefore expected that over the next few weeks the Government will publish initial draft proposals outlining its position in future foreign takeovers and bids for key infrastructure deals. There have been arguments over the vulnerability of UK firms following a vote to leave the EU, with an emphasis on the need to protect British infrastructure and encourage inward investment. Angela Monaghan and Philip Inman of the Guardian argue that the review has come out of public concerns that ‘the Brexit vote and steep fall in the value of the pound could trigger a wave of predatory takeovers of big British firms’.
Brexit, indeed, raises questions over the level of influence that the Government should have over the takeover of UK firms. Recent global events suggest a rise in isolationist politics, with Brexit already threatening the security of foreign investment within the UK. It is therefore crucial that the Government exercises caution when reviewing its role in foreign takeovers, so as to not be regarded as closing Britain’s borders to valuable investments. Director General at the Institute of Directors, Stephen Martin, stressed his concerns, stating that ‘Britain has to do more to demonstrate that it is keen to play a part on the global stage’.
Following the call for the review of legislation regarding foreign takeovers by the Prime Minister in October 2016, many firms have spoken out about the potential negative effects such changes could have on the UK’s interests. In particular, written evidence produced by Rolls-Royce highlighted their concerns that ‘a closed approach to foreign takeovers will generally deter investment’, with Mastercard stating that ‘any perception, however unintended, of the UK appearing inward-looking or unwelcoming to foreign investment could be immensely damaging to long-term economic prospects’.
Given the ambiguity of the Prime Minister’s stance on foreign takeovers and investment and lack of continuity over what is regarded as the national interest, the Business, Energy and Industrial Strategy Committee has called on the Government to clarify how it intends to intervene in foreign takeovers of UK firms, and under what circumstances it is willing to do so.
Given the Government’s new freedom to adopt more heavy-handed legislation on foreign takeovers following Brexit, it is crucial that the Prime Minister reassures UK and foreign firms and investors. The Government must set out a clear policy that will not discourage the future key foreign investments that will benefit UK infrastructure and the wider economy.