Cadbury takeover would help balance the books
Instead of giving City shareholders a ticking off for selling UK companies abroad, Lord Mandelson might like to consider the benefits of sorting out the country’s financial problems by realising assets. Foreign takeovers go a long way to balancing our national books.
The trade secretary – backed by Treasury minister Lord Myners and trade minister Lord Davies – has called a meeting of the investing institutions to explain their responsibilities in looking to the long term instead of accepting short term-gains by accepting takeovers.
He has Kraft Food’s £10bn offer for Cadbury (LON:CBRY) at the top of his agenda, of course, but perhaps the trio of ministerial peers should be going abroad to find companies willing to make bids for other UK companies. Britain is running a trade deficit of about £7bn a month on goods and we can no longer rely on the financial services sector to offset that with invisible earnings.
Britain has to borrow the difference abroad unless it has capital account inflows from items such as asset sales, and cash takeovers are a substantial source of foreign currency. In the last decade, selling P&O, Pilkington, BAA, O2 and all those other companies provided a regular stream of overseas capital that bridged our trade deficit.
The weak pound is both the reaction to the need to finance the trade gap and the market’s solution, but so far it has failed to stimulate exports. Indeed, Lord Mandelson’s car scrappage scheme did wonders for stimulating imports, making the need for foreign takeovers even greater.
Kraft Food’s (NYSE:KFT) bid is not quite the ideal solution however. Not because it is a foreign takeover of a iconic British company, not because it is too cheap, but because it is only partly in cash: offering American shares does nothing to finance the trade deficit. A full cash offer would be very different – though when UK companies are partly owned by foreign pensions funds, not all that cash will come to Britain.
The peers’ concern about selling companies abroad is a traditional xenophobic call but if we believe in companies trading we have to believe in a trade in companies too. Cadbury happily bought US businesses such as Dr Pepper, so why object when a US business wants to buy Cadbury.
A sale would mean swapping the UK company’s stream of future dividends for a lump sum now, but given Britain’s debt, that makes sense even if the trade deficit is ongoing. It does not follow that British jobs would be lost or the UK company would abandon British suppliers or stop paying British tax.
And in Cadbury’s case, it would remain a substantial exporter – possibly selling more to the US if it had an American owner. And that is the best way to close the trade gap.
January 13th, 2010 at 10:47 pm
Why not sell BP, Glaxo and Shell to foreigners while you are at it, swiftly followed by anything not bolted down in the City?
Answer:
Companies remember their heart is where their home is.
For example: Think just how much politically easier it must be to flush Saab down the pan when the current owner is not actually Swedish? Good, I hear you say. It wasn’t fit enough for the market. That’s the kind of free market global capitalism that gives Karl Marx a good name.
Basically, we need SOME companies among the owners as well as the owned to have any shred of self respect, disproportionate income from exploiting other nations and safety in bad times, when as we all know a company’s thoughts turn to core business and to home countries and head offices.
Personally I think you have just crafted this contentious argument to draw attention to your blog.
It’s so self evidently worthless piffle that you can’t possibly really believe it.
Still. Makes a good headline dunnit?