Over the years we have seen some massive international mergers involving billions of dollars. While many of these deals make sense from a business point of view they are often investigated and sometimes amended by relevant governments because of competition issues. At this moment in time there are very strict guidelines regarding competition issues which are there to maintain a balance marketplace. So, should governments be allowed to block any international merger?
Cadbury takeover
When Cadbury was acquired by Kraft Foods just a few years ago there were serious concerns that the company would shift manufacturing capacity to the US. This was a company entrenched in UK history and a major player in the UK market. While initially Kraft Foods agreed to a number of conditions, protecting Cadbury’s UK presence, these conditions were effectively ripped up as soon as the deal went through. The fact that these conditions were not legally binding ensured that the US parent company had done nothing wrong and could not face prosecution.
Politicians were up in arms when the pre-deal conditions were ripped up and while they tried to get the leading executives from Kraft Foods to speak at various Parliamentary investigations, they simply refused to attend. The problem here was that in theory the government had no reason, other than national history, to add any conditions to the takeover of Cadbury. This perfectly illustrates that interfering in free-market economies does not work.
Valid reasons for blocking deals
There are many different reasons which would allow governments to block the acquisition of domestic companies by international counterparts. They could be blocked on competition grounds or security grounds to mention but two. The idea that you can simply block the takeover because of the company’s history is akin to something from the dark ages. We now live in a free market economy and let us not forget that many UK companies have raided the US to acquire companies. Have they always been understanding with regards to those companies and their presence in the US?
The simple fact is that where there are no valid reasons for blocking deals the politicians can huff and puff all they want but money will talk. It would be naive to say that if a company is a takeover target then it is doing something wrong because it could be the exact opposite. However, for some of the leading lights in the UK and the US for example it is a case of hunt or be hunted.
Legal obligations
We are obviously putting aside the various legal obligations which companies operating in the UK need to abide by even if they have a US parent. These relate to minimum pay, working conditions and pensions to name but a few. These are separate, these obligations are set in stone and companies are legally obliged to adhere to them. However, the idea that politicians should be able to block any move in a free market economy is not only wrong but could be counter-productive.
Investors like to know where they stand, what protections there are in place regarding competition for example, but ultimately money talks. We have seen some enormous mergers between UK and US companies over the years and this is perhaps even more likely in the short term when you bear in mind the recent collapse in the sterling/dollar exchange rate.