AstraZeneca bid shows that takeovers of UK firms are all too easy
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Version 0 of 1. The takeover of AstraZeneca by the American giant Pfizer is rising up the political agenda thanks to the intervention this morning by Michael Heseltine. The £60bn initial offer price made this the largest foreign takeover of a British company, and public and political interest is set to increase further. The offer has already been raised to £63bn. AstraZeneca is the second-largest pharmaceuticals company in the UK, responsible for 2.3% of exports, and it has invested £2.8bn in research and development. It is considered a strategic company in a strategic industrial sector, and is the kind of company the UK needs to help propel genuine jobs and growth. It is also just the sort of life-sciences sector in which the government is investing as it aims to "rebalance" the economy. Unfortunately, all this will mean little to the forces and players who will determine the bid's outcome. The future is very easy to predict now: AstraZeneca plays hard to get, and Pfizer will keep upping the bid in stages until shareholders approve the deal. Government figures, particularly marginalised interventionists such as the business secretary, Vince Cable, and Heseltine, will keep showing concern. The bid will be looked at by the European commission and the new Competition and Markets Authority. The deal won't be blocked, although some conditions may be imposed. Pfizer will make billions from the tax advantages, from asset sales, and by severely cutting back on R&D and jobs (whatever it says now). City firms will take a healthy cut. Another blow will be dealt to Britain's industrial sector. But the coalition will boast of its ability to attract big business to the UK. Many prominent UK political and financial figures have made out that this is just the way of the world. Markets and market forces are best left to make these decisions; that is what is best for our economy. What is not said is that the UK is pretty much the easiest leading economy in which to launch takeovers, as we explain in our report Takeovers and the Public Interest. Between 1998 and 2005, Japanese takeovers equated to 2.5% of GDP, German to 7.5%, the US 10.7%, and the UK 21.8%. It's also the easiest place to launch hostile takeovers because the odds are stacked very much in favour of bidders. What is also not admitted is that shareholders are primarily driven by short-term value in the UK. The days are gone when patient investors held company shares for many years. In 2010, hedge funds and other "high-frequency traders" were responsible for 72% of market turnover. During any takeover period, multiple speculators buy up target company shares, push up the value, and then cash out after the merger goes through. This deal is no different. Pfizer openly pitches the deal on the basis of billions of savings in tax. That works well for short-term profits and a rising share price but not much else, and takeovers have become a common strategy for big multinationals operating in the US and the UK's very liberal financial markets. It is no coincidence that since the 1980s the UK has suffered one of the fastest declines in its manufacturing base of any of its major rivals. It has also had one of the lowest levels of investment in R&D. AstraZeneca is likely to go the way of many other leading British firms such as Pilkington, Corus, BAA, Tarmac, Blue Circle, various utilities and Cadbury among many others. Even in the US there are more protections and government interventions to preserve strategic sectors. Since 1979, however, successive UK governments – both Labour and Conservative – have reduced their legal scope for intervention. This particular deal cannot be blocked under any of the existing criteria laid out in UK law. The government has already signalled its support for this "commercial matter". The EU, whose regulatory approach to takeovers was based on the UK's, is likely to take a similar line. As Heseltine implies, there is much that can be done to reverse this pattern: takeovers can be made harder; the odds can be restacked in favour of long-term investors rather than speculators. Corporate governance structures can also be reformulated. Directors' fiduciary duties can be better aligned to what is best for the company rather than simple shareholder value. Public interest tests can be introduced, and takeover regulation and institutions can be made to consider other stakeholders. But to do so, the failings of the current regime must first be publicly acknowledged by all political parties. |