By Selina Williams And Denise Roland
LONDON--If you're looking to take over a big British company,
take heed. The U.K. government elected Friday has been increasingly
hostile to foreign takeovers.
From drug behemoth AstraZeneca PLC to oil giant BP PLC, British
companies or business assets with strategic national importance
were increasingly protected from outside acquirers under Prime
Minister David Cameron's government in the past year.
Warnings against foreign ownership were an unusual feature of
the election that ended with Mr. Cameron's Conservative Party
winning an outright majority after ruling for five years in a
coalition government.
In general, the U.K.'s Conservative-led government has been
supportive of foreign investment, but it began scrutinizing
takeovers of British companies after U.S.-based Kraft Foods Inc.
acquired Cadbury PLC, in a GBP11.9 billion ($19.4 billion) deal in
2010. Following that, the U.K.'s takeover panel, the body that
regulates deal making, required bidding companies to provide more
details on their intentions toward the target after the takeover,
such as repercussions on jobs.
Last year, U.K. politicians rallied in defense of AstraZeneca
when U.S. rival Pfizer Inc. proposed a takeover. The politicians
argued that a deal would be against the public interest because it
posed a risk to jobs and investment in the life-sciences
industry.
Government ministers had no power to block deals on these
grounds, but political opposition made life difficult for Pfizer.
It forced Chairman and Chief Executive Ian Read to make the unusual
move of writing to Mr. Cameron, with a string of commitments to the
U.K. science infrastructure. Mr. Read was also summoned to two
separate parliamentary committees, where he faced questions on the
strength of these commitments. Pfizer ultimately abandoned the deal
after AstraZeneca rejected its final proposed offer.
In March, as the political campaign began to heat up, the U.K.
Department of Energy and Climate Change moved to block Russian
oligarch Mikhail Fridman from owning stakes in 12 North Sea gas
fields that his investment fund obtained in a $5.7 billion deal for
the petroleum division of German energy company RWE AG.
The reason, U.K. officials said, was that Mr. Fridman could be a
future target of U.S. and European sanctions related to Ukraine
conflict, a prospect that could result in the suspension of his
North Sea gas fields. The fields are responsible for about 5% of
the U.K.'s North Sea gas production.
Mr. Fridman protested, saying he isn't under sanctions. He isn't
known to be a confidante of Russian President Vladimir Putin.
In April, U.K. energy officials gave Mr. Fridman up to six
months to sell. A spokesman for his investment fund, LetterOne
Group, said Friday the company is looking to sell the
fields--"given the circumstances."
Perhaps the boldest move by the U.K. government against a
foreign takeover came just weeks before Thursday's election. A
spokesman for Mr. Cameron confirmed that the government had told BP
that it would block any sale of the oil company to a foreign
company, so it would remain a British company with global
clout.
Still wounded by billions of dollars in penalties from the 2010
Gulf of Mexico oil spill, BP has been the subject of takeover
rumors since the price of oil fell in the past nine months,
lowering its share price and the value of its assets.
Practically speaking, the U.K. government's ability to actually
block any potential deal from going forward is limited, said
Alexander Keepin, a partner at Berwin Leighton Paisner, a London
law firm that advises resources companies, though it could
intervene on grounds of national or financial security, or a threat
to media plurality.
"Generally the government has very limited power to interfere
with [mergers] and has traditionally been reluctant to do so," Mr.
Keepin said. "However, in certain sectors the government has
indicated that this may change."
One counterpoint to any government objections to a deal is that,
in many respects, BP is a British company by legacy only. The
majority of its assets are located in far-flung corners of the
globe. The largest proportion of its crude reserves is in the
U.S.
There are few companies big enough to acquire BP, which has a
market value of $132 billion and remains among the world's four
largest oil companies that aren't state owned.
It is unclear whether the government's dialogue with BP was
prompted by a takeover approach, but it may do little to stem
M&A talk within the industry, bankers said. It did send BP
shares down temporarily, though.
"Government proclamations about BP being a 'British industrial
champion' may take the shine off the shares short-term to ward off
approaches while longer-term oil-and-gas-sector consolidation talk
continues," said Will Heddon, a dealer at trading-services firm
London Capital Group.
The Conservatives aren't the only party that appears to view
cross-border mergers more skeptically. Former Labour Party leader
Ed Miliband had called for more scrutiny of such deals, and some in
the London finance community many had feared a Labour government
would block takeovers it saw as politically unfavorable. Analysts
at Berenberg said this threat should be "largely removed" with a
Conservative-led government.
The government's recent moves are in contrast to the earlier
enthusiasm from British governments of all stripes for deal-making,
even in the most strategic parts of the country's energy
sector.
In a multibillion-dollar deal in 2009, the Labour-led British
government welcomed the takeover of Britain's atomic power industry
by French state-controlled nuclear giant Électricité de France
SA.
In 2013, the current Conservative-led coalition government
didn't flinch when Chinese nuclear companies joined with EDF to
build two new reactors in a $24 billion deal. Nor did it object the
previous year when China's Cnooc picked up a stake, via its
acquisition of Canada's Nexen Inc., in an important North Sea oil
field that feeds into the Brent benchmark.
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