AstraZeneca and UK prosperity

AstraZeneca package

Barely a day goes by at the moment when a big British company isn't flogging a big asset or isn't on the end of a takeover bid; and banker chums tell me the "deal flow" (dread phrase for takeovers of companies) looks set to be strong.

The explanation is psychological. The economy is recovering. There hasn't been a big economic whoopsy since the eurozone's banks almost went splat two years ago. And most substantial companies accumulated mountains of low-yielding cash in the years of the Great Recession.

When it comes to investing and buying businesses, companies aren't a good deal more sophisticated than sheep: when they sense the big bad wolf of recession or crisis is over the hill, they all rush in a flock to spend.

Which raises that hoary issue once again of whether companies buying other companies is a good or bad thing, for investors and the wider economy.

There is so much empirical evidence that takeovers regularly damage shareholders' wealth, and yet the bids-and-deals game goes on and on, that it is probably fatuous to expect the owners to exercise caution, and block deals.

As for the economic impact, well it is not cut and dry. Many of the UK's more successful industrial competitors, including the US, see politicians intervene to block or amend deals for national strategic reasons in a way that almost never happens here.

Which begs two questions.

First, whether the government should intervene to frustrate takeovers in a way that hasn't been fashionable for decades.

Or whether the boards of companies in receipt of takeover offers should explicitly take into consideration more than the price being proffered.

Key sector

In the UK, this is once again a semi-urgent issue, following the announcement that the US pharmaceutical giant Pfizer wants to buy AstraZeneca.

This transaction is particularly resonant because AstraZeneca has great intellectual property, it employs significant numbers of scientists and brainy researchers in the UK, and it has important links to top British universities.

The legitimate fear would be that - whatever promises and undertakings are given by Pfizer - over time the deal would hollow out an industrial sector important to British prosperity.

The noises from government are that ministers understand this concern.

But the British industrial convention of the past 30 years is that everything is for sale - and that the UK attracts much more inward investment than other comparable rich countries because it rarely frustrates the operation of the market.

And even if ministers wanted to block the deal, it is not clear they could, on the basis of current competition law.

So what about the directors of AstraZeneca?

The point is that since the great Crash of 2008, caused in large part by short-term, financially driven deal-doing by reckless banks, most big companies have talked the talk that short-term profits and the short-term share price isn't everything.

They all make a big deal of their responsibilities to employees, to customers and to the local and wider communities.

So could AstraZeneca's board cite the interests of these other interested parties or stakeholders to reject Pfizer's offer? Err no. Its primary and overwhelming responsibility is to its owners, the shareholders.

But they could perhaps discuss the effect of the deal on the UK's economic prospects in a full and frank way, so that - if they think the effect would be negative - the public and politicians would know what is genuinely at stake.

If they did not believe there would be a cost to the UK, that would be worth knowing too, of course.

Opening up in this way would be a scary prospect for most boards. Most company directors hate engaging in that kind of public debate.

That said, if they don't do it willingly, there is a strong likelihood they will be compelled to give their views, by MPs on one of a number of relevant select committees.

True defence?

One other thing.

In my too-long experience, bankers, brokers and public-relations advisers working for a target company always want the deal to happen - and that all they are really striving to do, underneath the rhetoric of "defending" the company, is to secure the highest price in an auction.

That is unsurprising, given that typically they receive more millions for their services if the takeover happens above a threshold price set by the board, than if it is not completed.

Which, given the powerful influence of these advisers, on the opinion of investors, media and politicians, means the probability of the deal collapsing is minimal.

Some might therefore argue that advisers should be rewarded for the quality of their advice, not for the outcome.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 281.

    Grounder @280
    "For better or worse"

    If ever we choose real democracy, all agreed, might higher decision-making become just differently cavalier, more Rev Flowers than Sir Fred, those at the top thinking 'no matter, late for golf, at least no-one will be greatly hurt'…?

    What stuff are we made of? Given a fair chance my guess something better than 'mostly harmless'.

    Thanks for topic widening!

  • rate this

    Comment number 280.

    @279. All for All "sustain impression with reverse of substance"

    By their fruits shall ye know them.

    Even when our decisions are not "brave", are we not often tempted to choose the cheaper option even when we are unsure of the exploitative provenance and consequences?

    For better or worse for the owners, the deal will be done (or not) without full consideration for all those most affected.

  • rate this

    Comment number 279.

    Grounder @278
    Never met, never recognised

    Yet amongst those who must take 'brave decisions', to sacrifice the few for the many, there are some who 'harden their hearts' for own gain, and some indeed 'psychopathic' who sustain impression with reverse of substance.

    More cheerfully, look on monetising as 'giving the keys' to adulthood, in equal partnership to responsibility!

  • rate this

    Comment number 278.

    @275 All for All "Blind Heartless Mammon"

    Individual human beings still make every decision, often in ignorance, without compassion and in a moral vacuum. I have never had the misfortune to meet (or recognise) a heartless human being.

    @277 "We 'monetise' belonging" Too much so, I fear. But social approval always tends to become tradable... and "property", and currency, thereby.

    Good night.

  • rate this

    Comment number 277.

    "monetisation of incentives"
    Pay for work?

    Mother & baby start equal partners, though they may not know it, one holding the purse but spending to their joint satisfaction. We progressively 'monetise' not so much differential incentive (though prominent for some in some cultures with some lack of empathy perhaps), rather by pocket-money, pay & pension we 'monetise' belonging.



Comments 5 of 281


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