Takeovers: We must resist government sentimentality


May 16, 2014

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It is easy to dismiss the French government as being needlessly hostile and over-emotional to GE’s bid for Alstom’s energy arm.

However, it isn’t alone in fighting for its national assets.

This week, UK MPs grilled Pfizer chief executive officer Ian Read over the US pharma giant’s proposed £63bn takeover of troubled drug maker AstraZeneca. Read told a House of Commons select committee that the proposed takeover would speed up development of Astra’s drugs; but critics of the deal warned that Pfizer would slash both jobs and R&D spending.

Both governments want to protect their “crown jewels” against vicious cuts. That is a natural instinct in any planned takeover, and we expect similar debates to rage in boardrooms in the wind sector in the coming years as consolidation takes hold.

The GE-Alstom proposal is the highest-profile example to date of takeover activity, but joint ventures such as Vestas-Mitsubishi and Areva-Gamesa demonstrate a growing appeal for corporate tie-ups.

However, regardless of what the government thinks, the ultimate decision over whether to proceed with a takeover surely rests with the senior corporate board.

In theory at least, they are the people with the best understanding of what is in the interests of the company and its shareholders. This is as true in wind as any other part of the economy.

Governments are right to grill companies over proposed takeovers and argue the case for the protection of jobs and national interests. They are right to push for cast-iron company commitments, too.

But, in a free market, the final decision about what is right for the potential acquiree must rest with that firm’s management.

It is not the government’s place to introduce takeover laws to stop the deal from happening, although this is what the French government has done this week with a decree that allows it to block foreign takeovers of “strategic” companies.

This has also been mooted in the UK, but t would be a dangerous step.

Yes, the UK government could use protectionist laws to stop the takeover of AstraZeneca, and that might protect some UK jobs today. But it ignores the jobs that would never be created in the UK if firms see it as a bad place to do business.

And that’s not the only thing. When it comes to acquisitions and mergers, there’s rarely an option that’s 100% right or 100% wrong. Sure, we might not like the final result but how can we guarantee that the alternative would have been any better?

This is the challenge facing Alstom as it maps out the plans for its future.

It is also one of the perils of operating in a free market economy. Some takeovers will provide the rocket fuel needed for future market success, while others may end in job losses, asset stripping and steady demise.

Clearly, nobody wants the latter, but sentimentality from politicians and corporate leaders does not necessarily result in the best option. As the wind industry goes global, it is important to remember the limitations of corporate sentimentality.

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