Earlier this year Cadbury, a beloved British company, became a member of the Kraft Company, a US food giant. Then Gatwick Airport was purchased by a private equity firm in the US. Now many more British companies stand ready to be purchased up by American or other foreign companies.
Analysts with Standard and Poor predicted that there are a number of companies that could be acquired and become foreign owned. Among those recently mentioned were AstraZeneca, BAE Systems and the contractor Balfour Beatty.
The sterling has lost about a quarter of its value against the dollar in the last 2.5 years. This makes British companies attractive to US investors and US competitor companies.
“AstraZeneca and BAE Systems are both in sectors where US groups have lots of cash and where they are looking to make acquisitions,” said Mike Thompson, managing director of strategy and risk at S&P. “AstraZeneca, for example, has a value of about £43 billion, but this is no longer that daunting for US firms. UK drug groups have a good profile for American rivals and if you consider the likes of Johnson & Johnson has a value of $160 billion, you can see where a deal could come from.”
Buy outs can be good news for UK shareholders and often pension plans receive a boost from the new “boss”. However sometimes restructuring occurs and employees fear for the loss of jobs. Last week Scott Wilson Group, a mid-tier engineer firm, accepted an offer by its US peer URS. While URS said it would attempt to retain as many jobs as possible it did admit efficiencies would be necessary in the transition.
Another company accepting an offer recently is Chloride, a FTSE 250 power company, that is accepting a £997 million offer from its American rival Emerson Electric. Brit Insurance has been high on the purchase list of US company Apollo but has already refused two offers of late. This past week Tate and Lyle entered into talks with American Sugar Refinery. Tate and Lyle are looking for a departure from its 150 year association with the sugar industry to concentrate on its products in the food ingredients market.
Analysts predict British companies will be attractive to US companies wanting to expand or buy out its competitors for some time. “Largely as a result of the financial crisis and the dollar’s perceived position as a safe haven, sterling’s losses are not to be reversed any time soon”, said Grant Lewis, head of Daiwa Securities’ economic research. “Looking back”, he said, ” sterling was undoubtedly overvalued and with the re-balancing that is needed in the UK economy it is difficult to see sterling rising much higher than its current level for the foreseeable future.”