Homegrown companies risk missing out on blockbuster deals amid a flurry of foreign takeover bids
This article for the Telegraph dated 8th August is very timely as many of us at BringItBack.online have been expressing our concerns about the sale of key industries such as Meggitt, the defence and engineering company, to an American rival for £6.3bn and the sale of Ultra Electronics by Cobham, to a US private equity firm, for £2.6bn.
The supermarket chains are getting bought out. The chip-makers are sold off. The defence manufacturers have been acquired, and so have the construction firms. Over the last few months, just about everyone with a big open cheque book has been descending on the UK, buying everything that might be available. Relatively cheap, and often with great growth prospects, British companies are suddenly all the rage on the global market.
But hold on. One group of potential buyers is nowhere to be seen – our own FTSE giants. All the bids are coming from international private equity firms or multinational corporations. And yet from Barclays buying NatWest, to Vodafone buying BT, to Asos buying Burberry, it is not like there is any shortage of potential all-UK deals out there. There is nothing wrong with British companies being sold to global buyers, and no one should argue for a move towards French-style economic nationalism. But it would be great if some of this country’s own corporate giants could crash the takeover party.
Almost every week brings some form of takeover bid. The grocery chain Morrisons, slightly surprisingly given just how long it has managed to stay resolutely in fourth place in its industry, is the most hotly contested asset, with a series of buyout firms making bids - on Friday Fortress upped its offer - and with Amazon reported to be waiting in the wings. But it is far from alone.
Meggitt, the defence and engineering company, is being sold to an American rival for £6.3bn. Ultra Electronics is being sold to Cobham, owned by a US private equity firm, for £2.6bn. The construction company St Modwen is being sold to Blackstone, of the US, for £1.2bn, while the chip maker Newport Wafer is being sold to China’s Wingtech despite political concerns. The list goes on and on. Overall, bids for British companies have hit their highest level since the dotcom boom two decades ago.
It is not hard to figure out why. In the wake of our departure from the EU, the UK stock market has been one of the cheapest in the world. With trade with Europe settling down, and a robust recovery underway, British companies are cheaper than they are in just about any other developed economy. For value, this is the place to look. There is a puzzle about the boom, however. There is one group of buyers who are staying away: the FTSE’s leaders.
Can anyone remember the last time a major FTSE company bid for a British rival? Nope, me neither. As it turns out, with a little help from Google, Sainsbury’s launched an offer for Asda that failed in 2019, and of course Melrose took over GKN in 2018. But apart from the London Stock Exchange’s takeover of Refinitiv, that is about it. They are staying out of the fray.
True, perhaps they are just being smart. It could be the case that everyone else is overpaying, fortunes will end up getting squandered, and it is better to keep out of the game; whoever ends up with Morrisons, for example, may eventually come to realise it is not quite the cross between Carrefour and Ocado they seem to think it is right now. There is nothing worse than making a dud acquisition at the top of a frothy market.
And yet, in truth, it also betrays a lack of ambition, and a failure of nerve.
After all, there are plenty of blockbuster potential deals that could be done. Such as? The Government would surely be open to an offer for its remaining majority stake in NatWest if Barclays or HSBC, or even one of the new fintech stars such as Wise, wanted to table an offer.
The bank is going precisely nowhere under its current management, and with so many new challenger banks it is hard to see much impact on competition. BT is doing its best to rid itself of its laughable foray into sports broadcasting, but it is hard to have much confidence in a company that got itself into that mess in the first place.
An offer from Vodafone would surely be welcomed by its shareholders. If Sainsbury’s made an offer for Asda, then why isn’t it at least trying to buy Morrisons? Surely that would be a formidable combination? Next bought a stake in fashion chain Reiss, but surely it is the only company that could rescue M&S from terminal decline, and while Asos has been astute in buying retail brands after they collapse into administration, surely a thriving luxury name such as Burberry would be the real prize. And is there a better growth story in food and consumer goods than Greggs? Shouldn’t Whitbread or indeed Unilever buy it before Coca-Cola, Kraft or Nestle swoop?
After all, most FTSE companies know the British market inside out, and none of them would face anything like the kind of political opposition that a foreign buyer often has to contend with.
In reality, British companies have rarely represented such good value. There are plenty of high-quality businesses that are a lot cheaper than any of their rivals around the world, and often have better growth prospects as well. That is why so many global players are descending on the UK market and spending as much money as possible while they still can.
Of course, there is nothing wrong with that. The UK should remain an open market where anyone can buy anything so long as it is within fair competition rules. But it would be reassuring if some of the FTSE giants could see the value that everyone else can - and could pluck up the nerve to start launching some bids before everything is sold off to foreign buyers.