“There is little more dangerous in the world of mergers and acquisitions than a politician with a microphone” –
so said the FT’s Helen Thomas in her recent article on a US private equity firm’s bid for UK supermarket Morrisons. She’s right, of course. Kraft’s acquisition of Cadbury in 2011, Pfizer’s aborted bid for AstraZeneca in 2014, GKN’s 2018 sale to Melrose and Advent’s purchase of Cobham in 2019: the list of deals where politics has come into play is getting longer and longer.
In recent months there has been a frenzy of M&A involving large UK companies. With the UK stock market yet to fully recover from its Brexit-induced turbulence, and having taken a further hit during the pandemic, there will undoubtedly be more transactions to come. Many of them will attract the feared ‘politician with a microphone’ and political communications can help you to mitigate the risk of such a scenario. Here’s how:
Message for the political context you are operating in: Last year the proposed Saudi Arabia-funded takeover of Newcastle United led to a cross-party group of MPs raising concerns that the bid was a further example of ‘sportwashing’, suggesting it was a vehicle to distract from the country’s human rights record. The current approach to Morrisons is taking place against a backdrop of growing concern about a private equity ‘raid’ on UK companies, publicised by a Daily Mail campaign against ‘vultures’ and ‘pandemic predators.’ And it was just a few months ago that a highly critical parliamentary report condemned plans to sell one of the UK’s biggest mutual insurers to a US group, calling the planned sale “unnecessary, rushed and ill-advised.” It is vital you assess which way the political winds are blowing, in addition to understanding the current regulatory and political landscape in your sector, so you can adapt your message for political audiences.
Stay alert with comprehensive intelligence on who is showing an interest: Whilst the opinion pages of the FT, Telegraph and Times are likely to be the first places you will see debate about your potential transaction, Westminster will soon catch up if a deal gives politicians cause for concern. Fears over job losses, unfunded pension schemes, degraded public services, a loss of healthy competition, national security, or companies’ futures – just one of these will be enough to set alarm bells ringing in Parliament. So you need to be fully alert from the outset. In the digital era a broadside against your proposed deal is just as likely to be launched on Twitter as during a debate on the floor of the House Commons, not to mention TV news interviews, Written Parliamentary Questions, online petitions, Written Ministerial Statements, and so on.
Be ready to address the concerns of key political influencers: There are numerous ways in which politicians can use their ‘megaphone’ to try and thwart a deal. In those mentioned above, Parliamentary committees held inquiries into Kraft-Cadbury and Pfizer-AstraZeneca. Former Business Secretary Andrea Leadsom was lobbied heavily by both sides on Cobham. And GKN-Melrose was debated in Parliament amid calls for the Government to intervene on national security grounds. Politicians aren’t the only ones: trade unions, business groups and trade associations will have their own views and often carry a lot of influence in these debates. The new owners of Asda, for example, were accused of ‘asset stripping’ by the GMB union following plans to sell off the supermarket’s logistics portfolio. The Business, Energy and Industrial Strategy Committee (BEIS) intends to contact the Competition and Markets Authority (CMA) over the potential takeover of Morrisons, whilst the Shadow Environment Secretary has sounded the alarm: “Government must ensure in the event of a takeover that jobs are protected, the business isn’t broken apart and that our nation’s food security is protected.” Early identification of the key political stakeholders and policy influencers is therefore essential. Once you know who to engage with you can allay concerns where they arise and work to generate advocates for your proposals.
Engage early and transparently with regulators and decision-makers: Central government and regulators do not take an interest in every piece of M&A involving a UK company, of course. But when they do it can be seriously damaging to a bid, or even deadly. The three key actors are UK government ministers, the CMA, and the UK Takeover Panel:
- In the UK, government ministers can intervene politically under the Enterprise Act 2002 which sets out the relevant public interest grounds of national security; financial stability; media quality, plurality and standards; and (as of last year) where a business is directly involved in a pandemic response, for example, a vaccine research company or PPE manufacturer. Culture Secretary Oliver Dowden recently used the national security provisions of the Act to refer the proposed acquisition of Arm by Nvidia for further investigation by the CMA. He took the same action on the same grounds for the 2019 acquisition of Inmarsat by a private equity-led consortium. Following political concern that assets important for UK security might fall under the influence of China or Russia, the Government has expanded its own intervention powers with the new National Security and Investment Act 2021. The legislation established a new Investment Security Unit within BEIS to be the custodian of national security interests thought to be under threat from potential M&A.
- The CMA deals with any competition considerations primarily under the merger-control provisions of the Enterprise Act 2002. The most common hurdle that proposed mergers and takeovers must pass is to demonstrate that they do not substantially reduce competition in the relevant market. The CMA assumed new responsibilities following the UK’s exit from the EU, taking on a more active role in global cases from January 2021.
- The procedures by which M&A is undertaken are subject to regulation by the Takeover Panel which also has powers to monitor and enforce ‘post-offer undertakings’ – legally binding commitments made by the acquiror with respect to the future of the target company. In 2010 the Panel issued a public censure of Kraft after the company was held to have reneged on promises relating to the closure of a Cadbury factory.
With respect to all these actors you should open lines of communication early on, acting transparently and giving consideration to addressing any concerns that are raised. No to do so will likely be fatal.
To avoid this range of potential political hazards disrupting your transaction’s journey, be sure to undertake the right preparation: understand the political landscape, ensure you have timely intelligence, and be ready to communicate reactively and proactively in support of your objectives.
Maitland/AMO has an unparalleled reputation for supporting companies through the transactions that define their future. We can help you to communicate the logic behind your deal, build support amongst multiple stakeholders, and anticipate and mitigate challenges along the way. If you’d like to discuss how Maitland/AMO can assist you with your M&A deal, please contact Jay Turner email@example.com