Is Britain for sale?

James Horniman, Portfolio Manager

The weak pound may make many of the UK’s most iconic brands susceptible to foreign takeover bids in the wake of last month’s £115bn bid by Kraft to buy Britain’s third largest company, Unilever.

At its worst point sterling has fallen over 20% against the US dollar since Brexit and though it has recovered to some degree, at current levels it could be one of the catalysts in attracting interest from international boards.

The Kraft bid may be just an opening gambit and the first of many attempts by US and other overseas corporations and even sovereign wealth funds to acquire a part of UK plc at a potential discount.

Foreign takeover worries?

There are a large number of very attractive businesses in Britain. In the eyes of a potential suitor a firm like Unilever doesn’t just offer globally-recognised brands, it also has enviable distribution networks in Emerging Markets that can mean the deal delivers real synergies to a competitor. You see something similar in other large British firms that have important relationships established in parts of the world like the former Soviet republics where it can be difficult to get a toe-hold.

Britain has the best legal system in the world and enviable corporate governance. When coupled together these could make some of our best companies look very attractive.

We have been underweight in the UK for several months because of general concerns about the UK economy and Brexit. Recently we have seen  the performance of a number of companies within the UK domestic space improving. If foreign companies see this progress at a time when sterling has fallen this could be enough to convince them that corporate activity is needed. Potentially it would only take one or two significant takeover deals to go through to prompt a re-rating of the broader UK market.

We wouldn’t necessarily buy a specific stock on the expectation of a bid – our approach has always been to look for quality businesses with attractive valuations. If you’re buying a quality company then the chances are that another firm will think it’s respectable at some point too. Strategic assets are very attractive in a low-growth environment – sterling’s fall may make a few window shoppers come inside…

James Horniman

Published 6 March 2017

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