ALEX BRUMMER: PM Boris Johnson has so far done a reasonable job of navigating choppy Britain-for-sale waters – but larger challenges are yet to come
- The current view among City takeover advisers is that the coming months could see larger eye-catching deals which will test all those involved
- Top target is BT; Another big potential target is all or part of GlaxoSmithKline
- With so much good science, R&D and UK production bound up in GSK it would be a very hard deal for the Government to let happen
The deals have come fast and thick in recent months. The tamely fought battle for Wm Morrison is the most eye catching. After all, every citizen knows and has a view on supermarkets whether it be about prices, food quality, empty shelves or speed of delivery.
Most of the other deals, such as Ultra Electronics or Meggitt, have barely caused a ripple outside the financial pages or Whitehall. What makes these transactions in engineering and aerospace special is their role in our national defence and ownership of valuable R&D. It has been possible for opponents to run up the national security flag.
As someone who is bitterly opposed to private equity ownership, whether at life insurer LV, Morrisons or Meggitt, one fears the impact of financially driven ownership. In private equity the broader stakeholder interest barely exists. These bids, and some lesser known deals such as that for graphene producer Perpetuus Group, have attracted attention in Whitehall and Westminster. It demonstrates that the barriers to acquisitions are higher than in the past and a more determined cohort of directors – too many non-executives are content to run up the white flag – could better defend the targets.
Sailing close to the wind: Boris Johnson and Business Secretary Kwasi Kwarteng have so far done a reasonable job of navigating the choppy Britain-for-sale waters
Another characteristic is that most of these deals are relatively small, in the single billions. The real test for politicians, investors and company boards will come when a bigger FTSE100 beast is targeted.
There is a good record of bigger takeovers/ mergers falling down. AstraZeneca drove off Pfizer, Unilever put up an uncompromising defence against Kraft Heinz and the proposed merger of BAE and Airbus fell apart. Only the bid for chipmaker ARM Holdings, sold to Softbank, made it to the finish line.
The current view among City takeover advisers is that the coming months could see larger eye-catching deals which will test all those involved. Top target is BT. It has two big strategic holders sitting on its share register. Aggressive telecoms investor Altice, controlled by French billionaire Patrick Drahi, owns a 12.1 per cent stake. He could get close to effective control if he were able to buy Deutsche Telecom’s 12 per cent holding. Alternatively, there could be a bidding war for new chairman Adam Crozier to preside over.
As a key strategic asset and a critical player in updating Britain’s infrastructure, with the rollout of fibre optic broadband, a bid for the flagship telecoms firm would provide a real dilemma for the Government. It could potentially provide the finance to speed up fibre to the door but would mean trusting the UK’s online future to an overseas buyer.
Another big potential target is all or part of GlaxoSmithKline. The company is going through a difficult transition under chief executive Emma Walmsley with activists Elliott busy shaking the tree. AstraZeneca garnered the attention in the pandemic but it is GSK which is the vaccine champion, with treatments and inoculations for everything ranging from cervical cancer, to meningitis and even HIV Aids.
Soon it will have Covid vaccines too. There is intense speculation that other major drug companies, some loaded with cash following the pandemic, have their eye on GSK, which is greatly undervalued.
Walmsley is seeking to release value by splitting out the consumer health care division. Perversely, by making GSK a purer pharmaceutical and vaccines play it could be much more vulnerable to an overseas and (less likely) a UK merger. With so much good science, R&D and UK production bound up in GSK it would be a very hard deal for the Government to let happen.
Boris Johnson and Business Secretary Kwasi Kwarteng have so far done a reasonable job of navigating the choppy Britain-for-sale waters. But the larger challenges are yet to come.