"I do not want protectionist legislation, but we do need a last resolute national defence,” said business secretary Vince Cable in City A.M. this week. Unfortunately, there is a risk that Cable’s proposals to toughen up the rules governing takeovers could have adverse consequences unless they are refined.
Contrary to some of the wilder speculation, Cable has ruled out a nationality test which would discriminate against overseas bidders and contravene EU law. He is instead considering introducing fines for bidders that breach any promises they made during the course of a takeover. Where there is a clear breach, this may have merit, but bidders must retain the flexibility to respond to a subsequent change in circumstances which they could not reasonably have anticipated at the time of the bid. Otherwise, they will simply make woolly statements which are so full of escape clauses that they mean very little.
More controversially, Cable proposed on the Andrew Marr Show on Sunday to allow the government to intervene in the “public interest” as a last resort. At the moment, the government’s public interest intervention powers are confined to the areas of national security, financial stability and the media sector. He says the new powers would only be used where the takeover is “very clearly against the national interest”, giving as an example “the loss of our R&D and pharmaceuticals”.
Cable has admitted that he has not secured coalition agreement on this, so at the moment this is just the Liberal Democrat view; it is not government policy. The difficulty is – who decides whether a particular takeover is against the national interest?
One of the key strengths of the UK regime is that takeovers are regulated by independent bodies such as the Takeover Panel and the Competition and Markets Authority. As soon as ministers become involved, the risk is that the takeover becomes politicised and bidders find themselves spending money on political lobbyists (as occurs in America). The bidder’s attentions should be focused on persuading target company shareholders, not political parties who have their own agendas and constituencies to satisfy.
Suppose a bidder wishes to restructure an underperforming UK company by investing in new technologies and closing down unprofitable plants. Within a few years, the company is returned to profitability and creates new jobs. What if the plants to be closed are located in marginal constituencies and the local MP begs the governing party to intervene to save his seat? Is that really how takeovers should be regulated? Tata’s acquisition of Jaguar Land Rover led to new investment and job creation – could such a deal be challenged by politicians under the new proposals? Even the threat of such a challenge could deter bidders.
Purely theoretical? Unfortunately not – look at what happened to News Corporation’s bid for BskyB. The special adviser of then culture secretary Jeremy Hunt resigned after his close relationship with the bidder emerged. The government’s role in such circumstances needs to be impartial and quasi-judicial, but politics can get in the way. Cable himself was stripped of his powers to rule on the same bid after he said to an undercover journalist that he had “declared war on Murdoch”.
Any extension of the public interest needs to be narrow and specific, and not give wide discretion to ministers. The best people to judge a takeover are the target’s shareholders, not politicians.