Notice the spring in the step of city corporate financiers of late. Their profitable game of chess, the hostile takeover battle, is back in fashion. And some of the grandmasters are back in the thick of it, led by Sir Owen Green's BTR, with its £1.5bn bid for Hawker Siddeley. They scent economic recovery and have pounced before a rising stock market makes targets too expensive. The possibility of a Labour government banning hostile bids has also been a spur.
Critics of hostile takeovers argue that too much corporate energy is wasted pursuing short-term takeovers; energy which could be applied to shaving costs or hunting out new markets and products. It is no coincidence that 75% of European takeover activity is concentrated in Britain, one of Europe's least successful economies. Hostile takeovers are virtually unknown in Germany and Japan. But some takeovers here have worked brilliantly: the combination of Guinness and Distillers created a world-beating drinks business; the best takeovers of Hanson or BTR have revived moribund and complacent companies. But the fact remains that too much time and energy in the FT-100 companies is spent either plotting takeovers or fending them off. This chess match is too expensive and sapping for Great Britain plc.
The European Community is flexing its muscles over British takeovers. Last year, the City's Takeover Panel ceded power to the Commission to vet mergers between companies with a worldwide turnover of over £3.5bn. There is the justifiable suspicion in British government circles that the EC's approach to takeovers is based on the old 70's formula of supporting national champions and picking winners with the State (in this instance the Commission) meddling to arrange mergers for the sake of 'industrial logic'. It has proved disastrous in trying to revive the European computer industry which, apart from ICL (Japanese-owned), is collectively losing billions of pounds of shareholders' and taxpayers' money.
Clearly a half-way house is needed between the totally free market approach of Peter Lilley at the Department of Trade and Industry and the European interventionist strategy. Hostile takeovers should be permissible but much more open. Nominee shareholdings, allowing a company to acquire shares by subterfuge, have no place in an efficient stock market. However few shares a company acquires in a potential target, it should be forced to declare that stake at once, not when it has 3% as at present. It should be forced to declare its intentions early - when it has, say, 1% of the target. Does it intend to bid, or is the stake 'for investment purposes only'?
The predator should then by forced to stick by its declaration. Currently, bidders can buy up to 30% of a target company before having to make a bid, which weighs heavily against a successful defence.
Finally, if a predator is repelled, the defender should have at least three years' clear run before another bid is allowed by that particular predator.
Shareholders in the predator's company may also have qualms about highly leveraged bids. Perhaps it would be sensible for them to be consulted if the price was to be raised substantially. Many a British bidder in America might have been restrained from absurdly high bids if shareholders had reined them in. The late Robert Maxwell, clearly went too far with his purchase of the American Macmillan business for $2.6bn in 1988. Had he been held back by powerful shareholder, maybe Maxwell Comuniocations would not be in such a mess. If British companies have to make the more difficult long-term route to wealth creation, rather than short-term quick fixes, so much the better. Jaw-jaw really is better than war war.