CBI's faux call for tougher takeover rules

Almost every empirical study of the value of takeovers indicates that overall there is no gain; the acquirer doesn’t benefit and the overall economy usually loses out. The only ones who gain are the shareholders of the acquired company, and in cases like the Tomkins sell out currently going through, its top management whose pay off is really nothing more or less than a bribe. This is in contrast with ordinary employees who usually face an immediate cull as well as a long term loss.

Around 80% of UK quoted company shares are now held by financial institutions who almost invariably encourage such deals. A disproportionate amount of the shares of acquired companies turn out to be held by hedge funds and the like, attracted like hyenas for the quick killing. An increasing proportion of such acquisitions are by highly geared private equity funds who load the victim company with all the debt, and more, that was borrowed to achieve the acquisition. It may be legal, but it is theft nonetheless, and the working population and its dependents are the ones who lose out.

The CBI agrees with Vince Cable’s proposal to withdraw voting rights from shares which change hands after a bid is announced. But that would merely establish the rules of the game, and ways round it would quickly be found. Short term speculation could only be inhibited if votes simply did not attach to shares in the short term. For example, 50% voting rights accruing to shares after 6 months ownership, and 100% only after a year.

Cable is right that UK public interest is not served by selling out British industry, but a public interest test, presided over by government or its agent, would only be setting the rules of the game and inviting play to begin. Apart from the public interest, the other main losers are the employees of the acquired company. Their defence, as well as the public’s, could be raised by giving an employee vote of, say, 50% (as in Germany) on issues affecting the company’s autonomy.

It is understandable that the CBI has no wish to take decisive measures since its members are prime beneficiaries of takeovers. The Institute of Directors’ boss is even more defensive: “It would be undesirable for takeover policy to be perceived as a pretext for protectionism.” These bodies, the CBI and IoD, are driven by the free market fundamentalist philosophy which justifies the rape and pillage of real industry for the benefit of the wealthy few, who, of course, include their leading members.

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