LibLink … Vince Cable: Mandelson melted like a creme egg as the vultures swooped

Over at the Mail, Lib Dem shadow chancellor Vince Cable writes about Kraft’s takeover of Cadbury, arguing that government policy has failed in three ways: by ignoring the damage mergers do to the economy; by refusing to curb the company voting rights of short-term speculators; and by letting a state-owned bank lend the money which sealed the deal. Here’s an excerpt:

I feel for the Cadbury workers, but that alone is not enough explanation for the anger over the deal and the significance of the takeover. Nor is the fact that Kraft is American. Britain has long been open to foreign investment and, as a consequence, there are few genuinely British companies left. …

I am not in favour of pulling up the drawbridge. It is too late anyway. And many of the foreign-owned firms – such as Honda and Nissan – have brought more jobs, technology and wealth to Britain than those that were authentically British. … The really disturbing lessons from the Cadbury takeover are somewhat different. One relates to the very permissive approach the Government adopts towards mergers and takeovers whether by foreigners or not.

Corporate takeovers can be a useful way of shaking up badly run companies with lazy managers who are delivering poor returns for their shareholders (who are often institutions managing your and my pension fund or savings). But the evidence has built up over many years that mergers destroy values. In the last big merger and takeover boom, shareholder value was destroyed on a massive scale by greedy megalomaniac managers who become rich building up bigger and bigger companies. Two of the biggest disasters were the RBS takeover of ABN-Amro and the Lloyds takeover of HBOS. Nothing much seems to have been learned from these failures. …

There are also failures of corporate governance that need to be addressed. What sealed the fate of Cadbury was not the generosity of the Kraft bid, which fell well below what the Board wanted or what independent observers judged to be a fair value. It was the hedge funds that bought large stakes – almost 30 per cent – and used their votes to gain acceptance of the bid. They have no interest in the long-term future of the company and its employees but saw an opportunity to make short-term gains from shares that appear temporarily under-priced.

Britain is unusual in allowing a simple ‘one share, one vote’ to apply in company law. There is a strong case for curbing the voting rights of those investors who invest entirely on a short-term, speculative basis. Maybe shareholders should get voting rights only if they have held shares for at least a year.

Last but not least there is the role of the publicly owned banks. They – like the Prime Minister – see no reason why they shouldn’t act like any other bank, disregarding any wider concerns about the country’s interests. That isn’t good enough.

Large numbers of small and medium-sized British companies are still struggling to raise credit – working capital – to run their businesses. The Bank of England has confirmed that there has been a continuing contraction of net lending to these companies. Yet £600million can be found for a takeover that may well have damaging consequences for the UK.

The managers will say: ‘We are a global bank; we make money where we can.’ But when they collapsed, it was the British taxpayer, not the rest of the world, that rescued them. We poured our billions into RBS to back, not attack, British business.

I don’t blame the managers for doing the job they have been asked to do. I do blame the Government for turning a blind eye and selling British taxpayers short.

You can read Vince’s article in full here.

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3 Comments

  • Anthony Aloysius St 25th Jan '10 - 10:27am

    Nice soundbite, shame about the lack of any coherent principle.

    On the one hand, we’re told that if only schools and hospitals could be freed from interference by “politicians”, the education system and the health service would be transformed by a process of “alchemy” and everything would magically be made wonderful. On the other, we’re told that government ministers should be intervening in individual commercial decisions by state-owned banks.

    Is there any underlying political conviction here, or are these pronouncements just dictated by whatever the PR people think will grab a few headlines and impress a few swing voters on any given “news day”?

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