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Rollo Crichton-Stuart Discusses How M&A in the UK is Evolving

In the summer of 2016, the chancellor of the exchequer, Philip Hammond gave his absolute backing for the takeover of Arm Holdings, saying the deal was a “big vote of confidence” in British business. Fast forward to the first half of 2017, and haven’t things changed.

The proposed takeover of Unilever, the Anglo-Dutch consumer goods giant, by Kraft, would have been one of the largest deals in corporate history, but was resisted by Unilever itself and provoked serious political unease over British jobs. Indeed, it was the rumour of political pressure that loomed large, as the papers poured over the rationale for such a quick U-turn. There are still plenty of commentators scratching their heads at the failed LSE/Deutsche Borse deal too. Surely the parties could have foreseen the issues around competition regulations; that the £21bn deal would have effectively created a ‘de facto monopoly’? Whispers of back room skulduggery within Westminster, and on the Continent began to rise and raised eyebrows around the sale, at a time of such economic and political uncertainty, of such an important part of the country’s national infrastructure.

When talking about proposed takeovers of British businesses by foreign companies, commentators, politicians, communities and of course, unions, are quick to remember the aftermath of the Cadbury takeover in 2010. In particular, when the firm confirmed it was to shut Cadbury’s Somerdale factory near Bristol in spite of pledges to keep the plant in operation. And rightly so. The benefits of foreign capital inflows are plain to see but when conducting M&A activity, the question of whether or not a proposed deal chimes with the interests of the UK as a whole, has to be answered. Now, more than ever, the emotive side of any transaction has to be one of the top priorities for any party on either side of a deal. Is it in the national interest? What will politicians say locally and nationally? How will communities be affected? How many pensioners are reliant on Company X’s continued success? By letting a deal go through, will the UK be losing independence within a core growth sector? When building a defence or indeed, planning a raid, in parallel with the investment rationale, these questions simply have to be answered.

There are now calls for takeover rules to be tightened. The business secretary is looking at proposals for how the government should respond to takeover bids for British companies, from foreign rivals. It is expected that any future plan will look to protect key national infrastructure but there is doubt around any broader ‘national interest’ test for foreign takeover bids. Either way, this does not reduce the importance of the ‘emotive factor’ when it comes to M&A; in this time of economic and political uncertainty for the country, the questions surrounding how businesses act in these scenarios will loom ever larger to wider audiences.

It does raise an interesting question though; as we leave the EU, are we at risk of becoming more European through increased protectionism? This may well be the case, and no matter how the General election pans out, advisers and corporates should ignore the emotive side of any transaction, at their own risk.

The team at Lansons has advised on some of the largest transactions in the UK. We are well versed in supporting companies of all sizes, be they public or private, on both sides of the M&A coin and have expertise in advising on financial communications, employee or change management, customer interaction and public affairs . If you would like to talk to us about a defence or potential target, please email Rollo Crichton-Stuart or Tom Baldock.

This article is part of our Spring 2017 newsletter