In a speech in Birmingham on July 11, before her leadership rival Andrea Leadsom stepped back and cleared her path to Downing Street, May set out her credentials as an economic reformer who would be tough on corporate excess.
In comments that caught the attention of City dealmakers who spoke to FN, she said that as Prime Minister she would crack down on takeovers that benefited big foreign firms but left UK companies diminished, citing Kraft’s acquisition of “that great Birmingham company” Cadbury as an example.
Although May did not detail the steps she would take to protect UK companies from such takeovers, she pledged a far more robust defence than previous governments have offered. May said: “Two years ago the government almost allowed AstraZeneca to be sold to Pfizer, the US company with a track record of asset stripping, and whose self-confessed attraction to the deal was to avoid tax.
“A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain.”
City lawyers, though, say the government can only block deals that impact national security, media plurality and financial stability and that a change to the law would be needed to extend such powers of veto.
Seth Jones, an M&A partner at Allen & Overy who spent two years with the UK Takeover Panel, said: “For May to block a transaction like Pfizer/AstraZeneca there would need to be a change in the law to give the government the ability to impose a public interest-type test in the pharmaceuticals sector or more broadly.”
He pointed out that changes were made by the Takeover Panel following both the Kraft/Cadbury and Pfizer/AstraZeneca situations, which made life more difficult for bidders but did not enable the government to block a transaction.
“I don’t think the Takeover Panel would see itself as having a role in blocking a transaction, so it would require a new legislation,” he said. “However, at the moment it’s difficult to make any predictions until we see what priorities the new government might have.”
Angus Coulter, who heads Hogan Lovells‘ competition and antitrust team in London, added that large international transactions – such as the two cited by May in her speech – are also reviewed by the European Commission, and that the UK’s negotiations for exiting the EU would be key.
“All of what she is saying would not be possible today,” he said. “If we [the UK] do a Norway [exit] then it wouldn’t be possible. If we completely Brexit and do our own thing on merger control, then presumably what we end up with is a position where deals are reviewed by both [EU and UK].”
A decisive split from the bloc could end up giving the UK less of a say on M&A deals, according to Coulter, who said “very large international ones will still be caught by European rules, so the UK won’t be able to take these deals completely out of EU jurisdiction. If anything we might have less say. At the moment the Commission speaks to each member state to get their views, but in future that won’t happen [with the UK]”.
Analysts say the weak post-Brexit vote pound is likely to attract foreign firms looking to buy UK companies at a discounted price. On July 12, US company AMC Entertainment Holdings announced it was buying Odeon & UCI Cinemas Group in a roughly £921 million deal, and specifically cited the historically weak sterling as a driver for the transaction. “This is a once-in-a-generation opportunity to acquire Europe’s leading cinema chain,” AMC chief executive Adam Aron said in a statement.
M&A bankers say May’s comments point to more “scrutiny and noise” around certain takeovers in future.
“I wouldn’t generalise, but tax-driven [deals] and asset stripping for strategic sectors will be under scrutiny,” said one senior advisory banker in London.
The European head of one advisory firm added that he did not think May’s comments suggested a desire for fewer foreign takeovers, but instead a more forensic analysis of certain deals. “On M&A, I agree with her – particularly when it comes to large companies,” he said. “If you employ tens of thousands of people, there are obligations to communities, you can’t say corporates don’t have a responsibility.”
However, Stephen Wilkinson, the global head of M&A at Herbert Smith Freehills, warned that there could be wider implications of a power that seeks to prevent takeovers of UK companies. “There needs to be clarity over the use of the power or we risk dissuading investment in the UK or causing companies to redomicile or relocate elsewhere to avoid UK regulation.”
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