Can they stop foreign take-overs?

What a difference an election makes. When Kraft were bidding for Cadbury the government said they were powerless to stop it. They did not propose any legislation to give themselves the power to stop such deals. We know, as they proved with the Digital Economy Bill and the Finance Bill, that they could push unwanted legislation through all stages in a matter of hours when they wanted to. So why didn’t they put something to Parliament about take-overs when it mattered?

There are several possible explanations. The first is they may have been told that Company law measures to block foreign take-overs might not be legal under EU law. Much of this area of work is a power taken by Brussels and given by this government in their legislation. The second is that their new proposals may not prevent a single take-over, so it was best not to put them to an early and real test. The third is, that this idea has been subject to discussion with UNITE, one of its leading advocates, and the politics have only just reached the point where it needs to be announced.

The leaks – which are not being denied and may even be inspired – suggest the policy has two features. The first is to require a two thirds majority to approve a takeover. Maybe that does get round EU law – we will find out. It does not guarantee a block on any given foreign take-over. If the bidder offers a good enough price most shareholders might want to sell out anyway. The second is to stop “hedge funds” voting if they have just recently bought the shares with a view to exploiting the increase in price over the bidding period. In practise I doubt they will be able to single out “hedge funds”. It is more likely they will have to ban any recent buyer of the shares from voting, which could include new shareholders they like. This would include a voting ban on shareholders deliberately buying into the company to help keep it independent. The “White Knight defence” is a well known City practise where sympathetic shareholders buy up shares to thwart an aggressive bidder. Intervening can often have perverse consequences.

There is also discussion of a “public interest” ground for turning down a merger. The Competition authorities always used to have this reserve power. When I was Competition Minister, acting for the Secretary of State, we could invoke this public interest clause in a number of areas if we wished. The irony is that it was Labour who swept away the old and perfectly good Competition Law in order to impose a complete European system on us. Now it appears they regret their European enthusiasm and are thinking of going back to the future.

Promoted by Christine Hill on behalf of John Redwood, both of 30 Rose Street Wokingham RG40 1XU


  1. Richard
    April 10, 2010

    It is an absurd policy, almost certainly unworkable due to the inherent contradictions you point out. There is no evidence from any capital market anywhere at any time that allowing – or in this case imposing – poison pills yields overall economic benefits. It is interesting that Cable and the Liberals favour this (and this a.m. have also criticised business leaders for opposing the Labour jobs tax). It is clear that there is nothing to choose between Cable and Brown on economic policy – both are left-leaning interventionalists. A hung Parliament with this pair in charge would be a disaster.

  2. FCABlog
    April 10, 2010

    Kraft was approved by 75% of Cadbury shareholders. Which rather suggests that the Labour proposals are more about dog-whistle politics than anything meaningful.

  3. Lindsay McDougall
    April 10, 2010

    All of this highlights the need for a treaty with the EU that suits us and not one that suits them.

  4. English Pensioner
    April 10, 2010

    Locking the stable door after the horse has bolted – typical of Labour.
    Haven't they noticed that the French have taken over our electricity supplies, some of our water supplies and that the Germans own one of the large mobile phone companies.
    These are part of our infrastructure, and far more important in my view than Cadbury; why didn't the act then?
    Virtually everything that Labour is now proposing, they could have done years ago with their majority in Parliament but all they seemed to worry about was fox-hunting! Shows their sense of priorities.

  5. Super Blue
    April 10, 2010

    Just as long as we all agree that chocolate is not a matter of national security – is this not just a reversal of their own 2002 legislation?

  6. APL
    April 10, 2010

    JR: "There is also discussion of a “public interest” ground for turning down a merger."

    Given presumably, that it was 'private interest' that builds a company to the condition where it mysteriously became a 'public interest'.

    What reasoning is there that the 'public interest' now has in prior claim over the private property interests of the original owners?

  7. Acorn
    April 10, 2010

    Exactly JR. Socialists have this endemic blind spot in their thinking. They don't understand that there are three basic parts of UK PLC. The government sector; the household sector; and corporate sector.

    The corporate sector is the one that supplies the wages; interest and dividends to the households. The households ultimately own the wealth of the corporate sector; from shareholdings to pension funds and other collectives.

    The corporate sector also supplies the income to the government sector via taxes; fees and charges. Also some – or rather a lot – of this goes via the households to the government.

    You have to add all three sectors together to see if the nation – UK PLC – has made a profit. Our government sector, is currently purloining about half the profits of the corporate sector and invariably makes a loss – borrowing: current and capital accounts.

    If one household sells something to another household, you do not create wealth within UK PLC, you just transfer it. UK PLC wealth only comes from profits and spending less than you earn, which is why governments should use the same accounting rules as the corporate sector.

    The bottom line is, if the corporate sector does not grow and increase profits, the rest of us at UK PLC, end up seriously needing a drink. (As Paddy would say at Marketplace). (HT: Mats Larsson).

  8. Martin
    April 10, 2010

    The present government are fond of using EU excuses when it suits them when the real reason is elsewhere. The generally euro-phobic press accept these excuses without trying too hard to check.

    Maybe the present government needed bonds to be sold overseas and upsetting foreign investors is not clever.

    If the company take over by government decree would the existing shareholders be entitled to compensation? Any shareholder would feel annoyed if they they thought the government was trying to buy votes with their sound shares.

    If the government says no to a takeover and a company gets into difficulties in a few months time they would be entitled to ask for government help. Tricky for a government wielding the axe elsewhere.

    As yes Minister would have put it "there we are Humphrey, easier to blame Brussels than other more complicated reasons" . Yes Minister.

  9. alan jutson
    April 10, 2010

    "Can they stop foreign takeovers"

    Probably not in this global world, where shareholders can reside anywhere.

    Should they be able to, yes if it is in the Country's and Public interest, but a feeling if its not in the interest of the EU then still a no.

    Nuff said.

  10. Derek Buxton
    April 10, 2010

    I seem to recall that one Mr. Blair facillitated the takeover of companies by an Indian, I think it was. Blair no doubt proffited from the deal.

    Do we not believe in "free markets" and all that any more? Just wondered.

  11. neil craig
    April 10, 2010

    I wouldn't want to be running a company where more than half but less than 2/3rds of shareholders wanted to sell. Morale would be low & decisions would be taken not for economic reasons but for placement in the next round.

  12. David Allen
    April 13, 2010

    When Lord Mandelson was EU trade secretary France faced a foreign takeover of Danone a cooked meat producer. To block the deal the French declared Danone to be a strategic industry under EU law. Bid blocked and no comment from Lord Mandelson or the EU.

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    April 23, 2010

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