Forget Unilever going Dutch – Brexit may give UK powers to protect industry
Home may be where the heart is. But for businesses there are many, more cold-blooded calculations. Lever Brothers — better known now as Unilever — has become the latest venerated British name to see control leave these shores.
The giant Anglo-Dutch company has announced that Rotterdam rather than London will be the home of its new unified headquarters. Chief executive Paul Polman was quick to say what this was not about, namely the UK’s departure from the European Union.
He insisted “categorically that it has nothing to do with Brexit”. He may be right as the company is, for now at least, not moving any of its operations outside of the UK, so will still need to cope with any cross-Channel tariffs once Britain leaves.
The company says that the decision is driven by the fact that the Dutch NV is bigger than the British plc, representing 55% of the group’s overall share capital and because more trading is done in its shares than in the London-listed equity.
All true. But it is a reminder that one way or another, the UK is losing its industrial assets. Rather than relocation, the usual route corporates take, as may be the case with aerospace giant GKN and its hostile bid from financial engineer Melrose. But more about that later.
At that visceral level there are many companies one can point to: BOC (now part of Germany’s Linde), Cadbury (Kraft of the US). BAA (Ferrovial of Spain), Pilkington (Nippon Sheet Glass of Japan), and Corus (Tata Steel of India).
If we pull up the drawbridge on foreign takeovers, we should not be surprised if other countries respond in kind
The first question, therefore, is whether this matters in any economic rather than emotional sense? The second is what should and could a government do if it was persuaded to intervene?
In a pure economic sense, ownership is irrelevant. Large companies that are floated on the London Stock Exchange will be owned by large investment funds that are either foreign-based or themselves have substantial non-British shareholders. The top four shareholders in Unilever plc other than the Leverhulme charity include two American, one Norwegian and a UK fund.
Equally, British ownership of foreign firms gets less media attention. According to official figures, deals involving UK companies as an overseas bidder in the three months to September 2017 came in at £51.1bn, a 58% increase on the previous quarter. This was mainly due to British American Tobacco buying Reynolds American Inc of the US, and Micro Focus International, a UK multi-national software and information technology business, merging with Hewlett Packard Enterprise’s software business.
Lastly, as long as the UK generally accepts the idea of a free market, then a system that allows new companies to come in and improve a business that is not delivering for shareholders is a good thing. If we pull up the drawbridge on foreign takeovers, we should not be surprised if other countries respond in kind.
But that does not mean the government should never make a takeover its business. Ministers are entitled to raise warning flags where they can see that a takeover may damage the UK in one of three areas: loss of jobs, skills and intellectual property; where the new company would have too large a market share; and threats to national security.
The lack of intervention over the hostile takeover of Cadbury by Kraft of the US is now seen as a mistake, mainly because the buyer made misleading promises during the takeover battle to keep a Cadbury factory open, only to change its mind after the deal was completed. As it happened, Unilever resisted Kraft’s overtures last year without any official intervention.
Three years ago a thinktank said almost half of UK aerospace firms had become foreign owned in the 20 years to 2014, warning that companies were taken over primarily for their valuable intangible assets, such as brand reputation, intellectual property (technology) or market position.
Unilever should not trouble anyone on those tests but surprisingly GKN should — despite the fact that its predator, Melrose, is a British corporate turnaround specialist.
it makes sense for Unilever to have its corporate headquarters within the EU
With the Government sitting on its hands, as it seems to be doing in many policy areas while it struggles with Brexit, it was left to European planemaker Airbus to warn that Melrose would not be “an appropriate owner” of GKN because it would lack the long-term vision that that sector demands.
And MPs have woken up, giving Melrose a grilling that led the company to pledge to keep GKN’s headquarters in the UK and maintain the same levels of R&D investment, at 2% of sales, that GKN spent between 2014 and 2016.
But while Unilever and GKN might be quite distinct corporate transactions, the two deals have something in common: Europe.
Whatever its CEO may say, it makes sense for Unilever to have its corporate headquarters within the EU. By moving to Holland it may avail itself of defences against takeovers currently written into Dutch law. Airbus has reminded us that industries such as aerospace have deep and complex supply chains that do not benefit from sudden changes in the hardness of boundaries.
The Government can take on more powers to intervene to protect its supply chain by making takeovers harder. It is debatable whether EU state aid rules prevent such action but certainly Brexit will give the government room to take whatever action it wants.
The irony is, of course, that the Brexiteers who want us to leave the EU are the same people who would object to the government taking on powers that allow it to override the free market dogma that puts the interests of shareholders first.
Last year Business Secretary Greg Clark published a green paper suggesting the government can intervene in a foreign takeover of a UK company with a turnover of £1m that is responsible for military products subject to export controls or the design of computer chips and quantum technology.
A white paper is due. Defenders of the UK’s industrial jewels will hope that Brexit Britain will look to play to its home advantage.
About the author
Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.
Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.
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