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THREE CHEERS FOR MARKET DARWINISM

MANAGING DIRECTOR, ARTEMIS

ASKED by a journalist what had given him most trouble as prime minister, Harold Macmillan replied, loftily: “Events, dear boy. Events.” Uncertainty surrounds the result of tomorrow’s election. But whoever wins will know, sooner or later, how Macmillan felt.

Stock markets certainly do. On economic and corporate news that was consistently better than expected, markets had been going on up – until certain events took place in Greece.

But whether tragic or comic, such things are the stuff of markets as they ebb or flow. For the foreseeable future, though, and even if other factors are negative, it looks as if one theme will drive markets up: mergers and acquisitions.

This year has already been rich in such activity. Arriva, VT and Chloride are but three examples. The last of these, for all that it benefits Chloride’s investors, is fascinating. If it’s such a good idea, why didn’t Emerson bid for Chloride last year at half the price of this new bid of 275p per share? Let alone “seal the deal” when they could have in May 2008, at 270p?

Weaker sterling is the answer. In May 2008, the Chloride equity would have cost $1.38bn.
But now the dollar cost to them at 275p is $1.12bn. The movements that currencies are heir to has paid the “take-over premium” up-front – and then some. For similar reasons, there will be more foreign buyers of UK businesses. The question isn’t whether there will be more “bid targets”, just who they will be.

It’s a great testament to the vitality and energy of markets that these mergers and acquisitions take place. These days almost everything (except cycling and sailing) is regulated virtually to death. And the state’s role in all our lives seems most unlikely to shrink.

This makes it all the more cheering, and important, that corporate Darwinism continues. Events will remain unpredictable. But in its many guises, and often despite the politicians, capitalism will always want to grow.