Selling Britain’s Corporate Crown Jewels
If you ever visit Britain, why don’t you jump into your rented Mini Cooper and go out and treat yourself to a meal at Harry Ramsden’s, Britain’s largest fish and chips chain—don’t forget the hp sauce for an added touch. For dessert, why not try a KitKat Bar or any other Rowntree chocolate product? On your way to the Savoy, swing by Harrods or the Body Shop and pick up a present for that special someone. It will make your evening just that more relaxing as you sit back and enjoy that Manchester United Soccer match while sipping a glass of Bass Ale or Beefeater gin and tonic.
But as you do these things, be aware that this is no longer a 100-percent traditional British experience. All of these British icons are now foreign-owned—relics of a once-mighty British corporate empire.
The value of British companies purchased by foreigners more than doubled from $41 billion in 2004 to a record $91 billion last year. If trends continue, 2006 will set another massive record. During just the first half of this year, foreigners spent $112 billion snapping up UK firms—a 90 percent increase over the first six months of last year.
These figures reflect the fact that the UK is the world’s leading takeover target. “[M]any of the world’s largest cross-border takeovers in 2005 targeted UK-based companies,” the Organization for Economic Cooperation and Development reported (Independent, June 29).
According to the Guardian, “Britain is being sold off at a rate unprecedented in modern times. If the foreign takeover bids announced or hinted at over the past few months all go through, airports, ships, banks, gas pipelines, stock exchanges, chemical plants and glass factories will fall into foreign ownership. Yet there is no debate; scarcely an eyebrow is raised. In any other country there would be uproar” (February 17, emphasis ours).
Many of these lost companies are among the most technologically advanced and strategically developed corporations in the world.
Here is just a partial list of former British-owned corporate crown jewels—a treasure chest’s worth of sparkling industrial gems that now lie in the hands of foreigners:
Air and Sea Gates
The battle for the world’s largest airport operator, British-owned BAA, is over. After months of beating back the hostile takeover attempt by Spanish construction giant Grupo Ferrovial and bids by an American-led Goldman Sachs consortium, BAA fell to the Spanish predator in June.
London’s Independent called the $19 billion deal “the most dramatic example yet of the way in which strategic UK assets are falling to overseas bidders” (June 7).
Many considered BAA one of Britain’s corporate crown jewels because it owns and operates airports that handle 63 percent of travelers going in and out of Britain. In Scotland, BAA handles 86 percent of all air travelers and manages airports at Glasgow, Edinburgh and Aberdeen. In London, the number of air travelers through BAA airports soars at 92 percent.
Besides providing jobs for thousands of employees, baa plays a strategic role facilitating the movement of goods and people into and out of Britain and around the world. In essence, it is the keeper for the United Kingdom’s air gates. Now, this strategic British icon is in the hands of a Spanish company.
Thus, BAA took its place alongside TBI, another British airport operator that last year was purchased by an international consortium which included Aena, the Spanish state-owned airports group.
And it is not just Britain’s air gates that are being sold; its sea gates are also under siege.
Though Britain was once the dominant global power in trade, today many of Britain’s ports and shipping companies are no longer home-owned. P&O (Peninsular and Oriental Steam Navigation Company)—a company founded 169 years ago during Britain’s superpower days and that remains one of the world’s largest shipping companies, with its unparalleled international infrastructure of container ports and ships—was purchased in March by the United Arab Emirates state-owned company Dubai Ports World for $6.8 billion.
Then, in July, Associated British Ports, the largest UK ports operator, which handles a quarter of the nation’s sea-borne trade from 21 domestic facilities, was cleared by regulators to be taken over by a foreign consortium for $5.1 billion. In January, the former UK-owned PD Ports, which operates the UK’s third-largest seaport, as well as other ports and shipping services around the country, was grabbed by another foreign corporation.
Several British manufacturers, including Rolls-Royce, Aston Martin, Bentley, Jaguar and mg Rover, are now all foreign-owned. American companies purchased Aston Martin and Jaguar; the Chinese, mg Rover; and the Germans, Rolls-Royce and Bentley.
Gas and Electricity
Many of Britain’s largest conventional power utilities are already foreign-owned. In 2002, German energy giant RWE Power bought Britain’s third-largest energy supplier, NPower, which supplies electricity and gas to approximately 6 million customers. Another German energy giant, E.On, owns even more of Britain’s energy distribution system. Through its subsidiary Powergen, E.On provides power and gas to 9 million British customers, making it Britain’s second-largest electricity and gas provider. EDF Energy, the French state-owned energy giant, is Britain’s fifth-largest electricity and gas provider.
Until recently, few questioned the wisdom of putting the nation’s heat and electricity in the hands of foreign corporations. In commenting upon the recent proposed takeover of British utility Centrica by Russian state-owned Gazprom, however, Britain’s Chancellor of the Exchequer Gordon Brown warned it could raise political issues. Gazprom is the company that cut off the gas supply to Ukraine and consequently much of Europe early this year in what was seen as a political spat between the two governments. Centrica is Britain’s largest gas utility, supplying gas to 13 million homes.
In February, British Nuclear Fuels (BNFL), the British state-owned nuclear power manufacturer, announced it had sold its power station construction arm, Westinghouse, to Japan’s Toshiba corporation. The Prospect union, which represents several thousand engineers, scientists and managers at 22 sites, attacked the sell-off for “robbing Britain of new-build expertise” (Morning Star, February 7).
In July, the government confirmed that it is planning to sell part of its stake in the nuclear power firm British Energy, which manages eight of the UK’s nuclear power stations and is the nation’s largest electricity generator. In addition, Britain is in the process of selling British Nuclear Group, the decommissioning division of BNFL. All these sell-offs are part of the government’s deliberate strategy of disposing of all its nuclear assets.
Britain’s largest water utility, Thames Water, is foreign-owned, though it is up for sale once again by its German owners. Thames Water supplies water and wastewater services to millions of Britons and other customers around the globe. French-owned Veolia Water also owns and operates several UK utilities.
Communications providers have also been gobbled up. Last year, O2 PLC, a mobile-phone company, was sold to Spain’s Telefonica for $31.7 billion. In January this year, Marconi Corporation PLC, the last remaining British telecom manufacturer of any size, was purchased by Sweden’s Ericsson. Marconi, a British institution whose roots trace back to 1897, was also considered a heavyweight in the British defense industry.
Founded in 1886, the strategic British-owned BOC Group, the world’s second-largest industrial gases manufacturer, is in the process of being purchased by a smaller German rival, Linde. This deal will make Linde the world’s foremost producer of industrial gases.
Another old imperial UK company, one that built parts for the famous World War II Spitfire fighter, Pilkington, was taken over in June. The 180-year-old glass company manufactured the windows that fighter pilots used to peer through. It has been bought by Nippon Sheet Glass, a comparatively smaller Japanese company; the merger creates the world’s largest glass manufacturer.
A much more strategic British military company, the engineering firm Doncasters Group, was recently purchased by the United Arab Emirates state-owned company Dubai International Capital. Doncasters produces components for military vehicles and aircraft, including the M1-Abrams tank and the F-35 Joint Strike Fighter.
British banks have also been targets. Although some of the most famous names became foreign-owned during the 1980s, the trend is continuing. In 2004, Abbey National, Britain’s sixth-largest bank and second-largest mortgage lender, was purchased by Spain’s Banco Santander for $16.7 billion. Alliance & Leicester PLC, another large British bank, is rumored to be on the auction block.
Even the London Stock Exchange is currently fighting off a hostile takeover attempt by Nasdaq.
Much of the news that Britons receive is now delivered through outlets controlled by non-UK interests. Foreign media-mogul Rupert Murdoch alone owns the Times, three other national newspapers and a television station.
Raleigh was once the world’s largest manufacturer of bicycles. Now it is just another foreign-controlled name in an increasingly competitive global market and no longer even manufactures bicycles in the UK: Its new foreign owners closed up shop and moved production to Vietnam and other Asian countries.
It might be surprising to some, but Britain’s probably most well-known, if not most adored, soccer team, Manchester United, is also foreign-owned.
The London Times lamented, “Big British companies are falling into foreign ownership almost daily,” with few protests (June 8). It called the sell-offs a “mass asset-stripping of the UK’s corporate infrastructure” (March 3).
Granted, British companies purchase foreign companies as well—but not nearly as many. During the first half of this year, for example, while 2,401 UK firms were gobbled up, British companies bought only 667 overseas businesses.
“[W]ith this rate of takeover, within a generation most British workers outside the public sector will be working for foreign companies,” the Guardian reported. “The scale of what is happening is truly breathtaking. … [N]o other economy is as open as Britain’s or makes takeovers so easy” (op. cit.).
Why UK Firms Have Fallen So Quickly
Today, most shareholders and ceos don’t care who is buying their companies—they are more concerned about the share-price premium they are receiving by being taken over. If shareholders can buy a stock one day and sell it the next for an immediate profit, most people would say they made a good investment. Similarly, if you were to ask ceos what their primary duty is, the top answer would probably be to maximize shareholder returns.
One of the quickest ways to maximize returns is to be bought out. “Because of a focus on short-term performance, it’s extraordinarily difficult to say no to a cash bid …. [A]ll the big risks are in turning a bid down knowing the share price will fall,” says Paul Myners, chairman of Marks & Spencer, a large British retailer (Economist, March 4). In other words, corporate leaders are afraid of shareholder backlash due to short-term weakness in stock price from not pushing the sale through, even if the long-term prospects of the company would be better if they weren’t bought out. This is one of the reasons corporate boards find it so hard to resist foreign takeovers, and why many British companies are no longer acting in the best interest of their nation.
“Leading UK institutions are incapable of deferring gratification,” says Myners. “They are addicted to a hit from a cash bid” (Daily Telegraph, June 11).
Unfortunately for Britain, the fate of much strategic domestic industry and finance lies at the whims of shareholders and ceos, who are usually more concerned about immediate gains than about longer-term economic and national security consequences.
Why No Watchmen Are Warning
The Guardian Weekly says the reason British leaders are not speaking out against the rash of foreign takeovers is the nation’s desperate need for an inflow of foreign cash. Besides America, Britain’s economy needs the money more than any other. “Britain’s industrial and financial jewels are being auctioned to pay for a record trade deficit. … With no end to the trade deficit in sight, the auction will go on until the cupboard is bare” (February 17). Due to Britain’s trade deficit, foreign nations are holding increasing numbers of British pounds. If Britain doesn’t allow those pounds to be spent purchasing British assets, it risks foreigners dumping pound holdings and subsequently risks a devaluation of its currency.
Another reason more British leaders haven’t spoken out is their current open-market ideology. “British politicians of all parties, unlike their continental equivalents, could not care less if British industry … is foreign-owned” (Times, March 3). Many of Britain’s leaders feel that takeovers are just part of the free market and capitalism. Further, some believe that since so many foreigners want to invest in Britain, escalating foreign takeovers must be a sign of economic strength and therefore not of concern.
Indeed, British Prime Minister Tony Blair doesn’t seem to have any apprehensions over foreign ownership. In June, he said that foreign takeovers of airports, utility companies and other strategic companies are beneficial to consumers (Independent, June 9).
But that kind of thinking can be dangerous, especially when the rest of the world isn’t on the same playing field. In much of Europe, governments restrict foreign takeovers and tend to promote the creation of national champion corporations. Nations like Germany, France and Spain fight to protect their strategic industry from foreign takeovers. But the British apparently lack that basic sense of loyalty and national vision.
Yet, the question that pro-open-market and foreign-takeover enthusiasts fail to adequately address is: How can a nation consider it “economic strength” to have a giant portion of its corporations foreign-owned? Whatever problems it may solve or benefits it may provide in the near term, it creates far bigger problems in the long term.
Dangers of Foreign Ownership
One problem with foreign ownership is that once the domestic company is sold, its future dividends and profit streams are more likely to then flow outward from the home nation. As columnist Carl Mortished said, the whole job of these foreign corporations is to “invest overseas and repatriate the profits for the benefit of [their] shareholders” (Times, July 5). As increasing numbers of British companies are taken over, progressively more and more of the profits made from British consumers leave the country.
Additionally, foreign takeovers often result in job losses. In many cases, when British companies are bought out by their foreign competitors, jobs are shed in the resultant company consolidations. Also, some foreigners have purchased British firms only to obtain their technology; once they have it, owners can close shop and move production overseas to lower-cost countries, taking jobs with them. This is great news for shareholders of the foreign company, but bad news for British workers and local economies.
Another downside of foreign ownership is that more corporate decisions will probably reflect the national interests of the new owners. For example, if an Italian corporation had to retrench or make cutbacks, it might consider it better to close a British factory than an Italian one.
In other words, once a domestic corporation is purchased, the destiny of its technology, operations, employees and profits resides in the hands of the new foreign owners.
Often, foreign owners are more reluctant than local owners to invest in developing or fixing infrastructure; in some cases, they can seem more interested in just pumping every last dollar possible from their new acquisitions. Take Thames Water, for example. Not once since the company was purchased by the German utility rwe has it passed regulatory leakage targets. Thames Water pipe infrastructure in Britain is in such disrepair that last year it leaked 196 million gallons a day. These massive leaks continue at a time when much of Britain is in the midst of drought and many Thames customers are banned from washing their cars and watering their lawns. Meanwhile, Thames Water profits soared more than 30 percent last year, partially because of a 21 percent price hike it charged customers. Amid a customer uproar, regulatory authorities are requiring Thames to spend more money in the future to replace old plumbing. Perhaps this is part of the reason behind the German company’s decision to put Thames Water on the auction block while it is still profitable. Analysts predict that the German owners will make a $3.2 billion profit over the original purchase price, in addition to yearly profits made since the 2000 purchase.
Economic considerations aside, there are other very real geopolitical problems with massive foreign ownership. Remember the Gazprom lesson. Should British consumers be so confident that European and other foreign countries would never attempt to coerce or threaten their nation?
Brian Winterflood, chairman of Winterflood Securities, certainly thinks there is good reason for worry. He says “people ought to be more responsible when they are selling off the national silver. … We tend to do everything to extremes in the UK, and we are proud of being a capitalist example, but there is a danger in making ourselves hostage to foreign companies” (The Express, July 14).
How about Britain’s seaports and airports? Is it far-fetched to think that a foreign nation seeking to influence or browbeat Britain would do everything in its power to do so—including threatening port operations? Although Ferrovial (the company that purchased baa), for example, is a public company, it is based in a foreign country, and its directors and shareholders are foreign. Is it a stretch to say that its loyalties lie outside the UK? Dubai Ports World, the company that purchased once-British P&O, is a state-owned corporation and will almost definitely maintain first loyalty to the United Arab Emirates, a country whose people have ties with many anti-Western radicals and extremists. What about defense contractors and nuclear power plants—should they be owned and operated by foreign interests?
In times of peace and economic prosperity, foreign control of strategic industries and infrastructure may not be an immediate threat. But in times of major economic recessions—or, worse, times of geopolitical upheaval and war—the loss of ownership of national industries can be catastrophic.
If the rate of British companies being purchased by foreigners is any indication, the next downturn in the world economy will be extraordinarily bad for Britons.
Unique, and Forgotten, History
British history is unique. Unlike the Persians, the Greeks, the Romans, the Ottomans, the Spanish, Imperial Japan, or Imperial Germany, the British never set out to deliberately conquer other nations in an overt effort to build an empire. As Lord Palmerston once observed, it appeared the British had inherited an empire during “a fit of absentmindedness”! The reality is, they were literally gifted an empire by Almighty God in express fulfillment of a promise He made to the ancient patriarch of the Israelite peoples, Abraham.
The United States and Britain in Prophecy describes this history thoroughly and explains in vivid detail the remarkable truth that the nations of the British Commonwealth (those of British heritage—primarily Britain, Canada, Australia, New Zealand and South Africa) and the United States of America are the modern-day descendants of the Israelite tribes of Ephraim and Manasseh. Their greatness is a direct result of God fulfilling His promises to Abraham and his seed.
Also unlike the other great imperial nations of history, the British never lost their empire to any conquering power. They gave it away! This has never happened in all of human history.
And now, not content with having given away its vast land possessions, a whole slice of global geography upon which “the sun never set,” it seems the British nation is on a headlong rush to give up every last vestige of capital investment in British-owned businesses.
This is all the more remarkable when one considers that the rest of the world once rode on the coattails of the Industrial Revolution spawned on British soil, with British inventiveness underwritten by British capital. The reality is that Britain—which once ruled the waves, controlling every key sea and land gate in the world, the envy of the world for the sheer massiveness and opulence of its globe-girdling empire—this Britain, which under the leadership of Winston Churchill stood alone just 65 years ago against a tyranny that could have swept the world into its cruel grasp—is now in the process of selling off what remains of its once vast national business assets.
And, in large part, these gems of British ingenuity are being sold to nations that traditionally regarded Britain as, if not an enemy, then certainly a competitor during the former colonial era.
The fact is that, since World War ii, Britain has embraced a foreign policy that has steadily changed it from the greatest imperial nation in man’s history to one that is opening itself up to becoming a vassal of the greatest current colonizing power of this age, the European Union!
To deliberately choose to place strategic national assets in the hands of former enemies surely represents the most extreme perversity of government policy operating directly against Britain’s own national interest. Britain will yet rue the day that it literally sold off the jewels of its own, homegrown national industries!