M&A bid battles face scrutiny in run-up to UK general election
The UK general election in May looms large over all British deals this year, with dealmakers braced for heightened political sensitivity and scrutiny of bid battles in the run-up to the vote.
How companies navigate the political landscape with political parties jostling for control of parliament will be an important factor in whether 2015 can outpace the $224bn in UK deals targeted at UK companies last year.
The greatest attention is likely to be paid to transactions involving well-known consumer brands and to those corporates that are big employers in the UK, say dealmakers. At least one big global bank is forecasting that large-cap UK M&A will slow dramatically until after the election.
Roger Barron, corporate partner at Linklaters, says the reason for the greater examination of deals is that since the crisis in 2008 politics and business have become more intertwined. “The flipside is that people are already prepared to work with the scrutiny and are looking to do the right sorts of deals,” he says.
Takeovers in the UK often invoke greater public passion in part because the country has fewer tools than other large economies such as the US or China to block takeovers from overseas bidders and review large M&A deals after they have been agreed.
That pre-emptive force was best seen last year when US drugmaker Pfizer launched a $120bn bid to acquire AstraZeneca, a UK-based rival.
Ian Read, Pfizer’s chief executive, penned a public letter to UK Prime Minister David Cameron and then faced two days of parliamentary hearings to address concerns about the potential deal’s impact on UK jobs, manufacturing and funding for scientific research.
Those promises included keeping at least 20 per cent of the combined group’s total research and development workforce in the UK, and completing the construction of AstraZeneca’s planned research and development hub in Cambridge.
However, shareholders and others questioned whether those promises were binding under the rules governing public takeovers in the UK even after the bid failed.
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In response, Vince Cable, the business secretary, said he would seek new regulations to bind companies to promises made during takeover negotiations. The self-regulatory body that polices UK takeovers subsequently responded by strengthening its rules to distinguish between undertakings and intentions made in deal talks.
Patrick Sarch, M&A partner at Clifford Chance, says: “As we approach the UK general election, any parties considering a major M&A transaction will need to consider the political and media dimensions.”
He adds: “As we have seen in recent years, there can be particular sensitivity to overseas acquisitions of UK household names and bidders have done what they can to address the concerns of politicians, media, employees and customers.”
That could affect a number mooted deals from the beverage industry — where investors are watching closely to see if global beer giant AB InBev makes an approach for London and Johannesburg-listed rival SABMiller — to the pharmaceuticals sector where some analysts believe Pfizer may return for a takeover of AstraZeneca or possibly GlaxoSmithKline.
The tensions surrounding a cross-border deal involving a well-known British company were exemplified by the fallout of Kraft’s takeover of the UK confectioner Cadbury in 2010, just after the last UK election. The US snack foods group faced a backlash from politicians after closing a plant it had pledged to keep open during the deal talks.
Guy Norman, global head of corporate at Clifford Chance, says the prospects of no outright winner in this year’s election could add greater uncertainty for acquirers and lead to a pause in dealmaking until the outcome becomes more clear.
“There is the possibility of a UK exit from the European Union if the Conservatives hold the balance of power; and less business-friendly policies around taxation and investment may be around the corner,” he says.