Why Britain welcomes foreign takeovers
Even London's 300-year-old stock exchange is up for sale, but few seem concerned.
LONDON — It's an observation often made over a bowl of strawberries among Wimbledon's sumptuous tennis courts: The tournament may be British, the venue undeniably so, but virtually all the major players are foreign.
Now it seems, the same arguments have migrated to a far broader field: British business. Once off-limits to foreign owners, British companies are now being swallowed up at a prodigious rate. What's more, no one seems to mind.
"The attitude is if a bunch of Spaniards want to own the airports, why does that matter?" says Professor Karel Williams of Manchester University, referring to a Spanish group's hostile bid for BAA, the company that runs most of Britain's big airports.
And that's only one of several major foreign deals in play right now, which economics commentator Will Hutton estimated at $100 billion in a recent article, "UK for sale, one careless owner."
Russians are stalking the largest energy utility; Americans are interested in nuclear operations. Even the 300-year-old London Stock Exchange itself is fending off bidders from Europe and America. Virtually no one in Britain has quibbled. And few have protested at the bid for BAA by Spain's Ferrovial.
That attitude stands in stark contrast with Americans' views on the matter. While no one in Britain seemed to flinch when a Dubai firm bought British shipping group P&O earlier this year, the deal generated an uproar in the US because it meant the Arab company would inherit P&O's operations in sensitive US ports.
But the "Wimbledonization" of British business raises two key questions: Is literally everything for sale, or are there certain assets that will remain off limits for reasons of security or political accountability? And why are the British so blasé when most of their big trade partners, America included, prickle at the thought of foreigners making off with the crown jewels of their economies?
Financial commentators and academics say that when it comes to foreign takeovers, Britain has perhaps the most open capitalist model of any big economic power. Margaret Thatcher's privatization drive made shareholder capitalism extremely popular, and firms are thus very widely held - by pension funds, institutions, and countless private individuals. They can easily be bought by simply appealing to one instinct: the desire to book a profit.
"To sell a company at a big profit is regarded a success," says Peter Buckley, director of the Centre for International Business at Leeds University. "British companies are on the whole publicly quoted, more widely held, and more easily available. But in the French and German systems, companies are often more closely held - by family members or regional bodies. It can be harder to win them over."
Professor Williams adds that the financial imperative has smothered sentiments of patriotism and introspection, causing the government to defer to "the City" - London's equivalent of Wall Street. "The government doesn't draw the line any- more," he says. "Now you have a system known as 'City-knows-best': If someone offers you a good price for anything, you sell it."
Mr. Hutton grumbles that this means the British corporate landscape is an endless auction in which few companies are immune from takeover. "I'm all for trade openness, but I don't think that auctioning a large part of the corporate jewels to international predators is wise," says Hutton.
In general, the British appear confident that foreign owners will pose little security threat. The state will continue to run police, customs, and immigration at London's Heathrow airport no matter which business operates the site. And powerful regulators ensure that providers of vital private services - transport, water, energy - adhere to strict rules on pricing and supply.
Still, there are a few British companies that the government may be loath to let go, such as the National Grid electricity generator, says Professor Buckley. Some in the City feel the government might also frown at any attempt by Russian gas giant Gazprom to swoop for Centrica, a domestic gas supplier and the country's largest utility.
But by and large, the government is unequivocal. Free trade is paramount; protectionism just delays the inevitable. "The paradox of protectionism," said senior government minister Alan Johnson in a recent speech, "is that it destroys what it seeks to protect."
Contrast that with attitudes in continental Europe, where political leaders have been known to circle the wagons to protect domestic favorites. Spain has been trying to block a German takeover of its electricity giant, Endesa. France has intervened repeatedly to prevent pharmaceuticals and utility companies from falling to outside predators. French President Jacques Chirac even sprang to the defense of yogurt-maker Danone when it faced a hostile bid.
"If that's a level playing field, I'd rather play up the side of a mountain," says Justin Urquhart-Stewart, director of Seven Investment Management. "You can't say Danone is a vital part of national security, unless of course they are going to throw yogurt at the Germans the next time they roll across the border."
Such interventions contravene European Union rules, and EU officials have warned offenders that they face legal action and even fines if they do not desist. "They don't have the right to block takeovers," says EU spokesman Oliver Drewes, adding that very few sectors remain sacrosanct. "There is a small area reserved to the security interests of states. We are talking about things like the French nuclear arsenal."
Everything else should be in play. Why? Because one of the basic precepts of the EU is that foreign participation is as good for an economy as it is for a tennis tournament.
Britain's openness is "one reason why our economy has been more dynamic than the European one," says Buckley.
But Williams cautions that in some cases foreign ownership can turn businesses into forgotten outposts of a multinational organization. Last month, the French carmaker Peugeot shut down an operation it owned at Ryton, central England; earlier this week Vauxhall, a unit of General Motors, cut 900 jobs.
Williams says this demonstrates how employment, manufacturing, and industrial strategy - which used to be government decisions - are increasingly in the hands of foreign businesses.