THERE is how the French do things, and then there is the British way. Germany’s Siemens and America’s General Electric are both seeking to woo French politicians as they prepare their rival offers for Alstom.
In the UK, however, America’s Pfizer knows who it really has to convince if it is to pull off its mega-takeover of AstraZeneca: the firms’s shareholders.
Sure, the politicians will ask questions – but the British way is to let the market work, unlike in France. Let us hope that it stays that way, and that those MPs with protectionist itches are able to control themselves.
Politicians should only intervene in takeovers if they threaten national security. North Koreans should not be allowed to buy a UK nuclear power station. But such instances are extremely rare; in all other cases, shareholders should have the right to do as they wish with their assets, and that includes being allowed to sell them to whoever is willing to pay the highest price.
Shareholders make lots of mistakes, as do executives. But they make fewer than politicians whenever they attempt to run companies. It’s about incentives (shareholders’ and bosses’ are better aligned to the pursuit of economic efficiency), knowledge (information and know-how is dispersed and better harnessed by markets than planners) and creative destruction (markets encourage it, politicians seek to discourage it, slowing down change, progress and growth).
As the success of the City and the UK car industry’s renaissance have shown, the ownership of companies matters far less than where offices and factories are located. The UK has specialised in attracting global firms, reaping the benefits in terms of high-paying jobs.
There are other reasons to dismiss the UK protectionist case. The new company would be domiciled in the UK, largely for tax reasons, including George Osborne’s ultra low-rate patent box regime (though it would be listed in New York). AstraZeneca itself has a global pedigree: while Zeneca was spun out of Imperial Chemical Industries (ICI) in 1993, Astra was Swedish.
The two components merged in 1999 and chose London as their HQ; the UK has therefore little to complain about this time around.
The takeover of AstraZeneca, if it happens, should also be seen as a manifestation of powerful economic forces at work. The UK’s current account deficit is going up. In other words, the amount of money UK-based firms and individuals make by exporting goods and services, and by collecting dividends and interest payments from their investments abroad, is increasingly being dwarfed by how much we import and hand over to overseas investors.
This means that another way needs to be found to finance our lifestyle – and that is to hand over chunks of UK capital to people and companies based abroad. This includes property, shares and bonds. The greater the current account deficit, the greater the capital account needs to be in surplus to make sure that the balance of payments sums to zero, as it must always.
Countries with large current account surpluses (as Japan had in the 1980s, or large energy exporters have seen since) go on acquisition sprees; those with large current account deficits see many of their assets snapped up by overseas investors. It’s not surprising – merely the result of accounting identities and basic economic logic.
For the sake of long-term stability, it probably also makes more sense if most of the capital inflows are in the form of semi-illiquid investments, including mergers and acquisitions, rather than merely portfolio flows into securities.
Countries that gain from market forces are those that learn to harness them to their advantage.
The UK’s entire economic strategy is predicated on it remaining an open economy; to give up now and to attempt to buck the market would be economic suicide.
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