The case of GKN and Melrose reminds us that takeover decisions should not be subject to political caprice

 
Julian Harris
Follow Julian
BRITAIN-EU-POLITICS-BREXIT
MPs have been debating the ups and downs of Melrose's bid for GKN (Source: Getty)

Humankind has yet to come up with a fairer or more effective system for distributing resources than a marketplace in which individuals and organisations are free to make their own choices.

Such marketplaces must be governed by rules, of course, and a key plank of liberalism is the principle that rules should be lucid, unambiguous and apply equally to all participants.

This principle generally faces little opposition when presented in theory. Yet the true test comes when market participants decide to make politically unpopular decisions.

Hostile takeovers present one such case, especially when pursued by a company with a history of splitting up and selling assets that it considers to be underperforming.

Thus it is little surprise that Melrose's attempted move on engineering giant GKN has triggered a wave of political dissent.

Read more: GKN boss evades grilling on whether jobs will grow if Melrose bid fails

MPs have complained of Melrose's "history of opportunistic asset-stripping"; they say the deal is the kind that threatens to "destroy our industrial base"; they believe Melrose represents "short term financial engineering", as opposed to GKN's "long term investment".

In short, many MPs and local politicians near GKN's plants are urging the government to block the deal in order to protect its industrial strategy and ensure no jobs are lost. Takeovers must be in the "national interest", they say – a soundbite borrowed by the Prime Minister when she was questioned about the deal.

The problem Theresa May faces is that, at present, the government can only intervene in takeovers on the grounds of national security, media plurality or financial stability.

Read more: Cohort of MPs call for Melrose's bid for GKN to be blocked

Some MPs such as Labour's Rachel Reeves are calling for those grounds to be extended. The government has the right to do this, but must beware populist over-extensions that could damage the UK's attractiveness to investors. Brexit Britain is supposed to be open for business, after all.

But more importantly, any extension of the government's powers must be based on rules that can be consistently applied to future mergers and acquisitions. They must not simply grant the right to judge each case on the basis of public mood and political caprice.

The current leaders of the opposition may dream of managing the bulk of our economy from Downing Street, but, for now at least, Britain's success is built on very different foundations.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Related articles