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Is UK tech worth protecting?

Is UK tech worth protecting?
September 27, 2017
Is UK tech worth protecting?

In her bid for party leadership last July, and in effect for the keys to Number 10, Theresa May promised to step in to prevent important sectors from detrimental takeovers. Workers, local communities and the wider country all have as much of a stake in these transactions as “transient shareholders”, she said.

Kraft Heinz’s (US:KHC) failed attempt to buy Unilever (ULVR) would have been a big test for Mrs May’s mooted approach. The prime minister reportedly set senior officials to the task of investigating the potential impact on the economy, and whether government should intervene. In the end, the new ‘industrial strategy’ did not get tested any further, although it is difficult to say how the reaction of Number 10 played in the would-be acquirer’s decision-making.

There hasn’t been much evidence elsewhere. Indeed, Mrs May’s latest speech in Florence extolled our shared beliefs with our European brothers and sisters, of rigorous competition and free markets. It identified a shared challenge in the “loss of support for the forces of liberalism and free trade that is driving moves towards protectionism”.

So protectionism is out, then? Liberal Democrat leader Vince Cable was ploughing a lonely furrow earlier this month when he argued Schneider Electric’s (Fr:SU) takeover of FTSE 250 software provider Aveva (AVV) demonstrated that there needed to be “a new public interest defence to protect our science and technology base”.

His written question on the impact on the UK economy of the proposed takeover received a nine-word response from Margot James, the parliamentary undersecretary in the Department for Business, Energy and Industrial Strategy: “This is a commercial matter for the parties concerned.” Aveva’s leadership pointed out that the combined company will remain listed in London, and plans to expand its operations following the merger.

This follows similar lines to SoftBank’s takeover last year of the UK tech success story that is chipmaker Arm: the Japanese company made promises on preserving brand, business model and culture, and increasing its UK headcount. China-backed private equity firm Canyon Bridge has at least promised no UK job losses at its Imagination Technologies (IMG) target, although there could be other hurdles to this action (see this week’s news story).

The Conservatives' now mostly shredded 2017 manifesto proposed that “all promises and undertakings made in the course of takeover bids can be legally enforced afterwards; and that the government can require a bid to be paused to allow greater scrutiny”.

There is currently a consultation on changes to the Takeover Code that would include requiring earlier “statements of intention” from acquirers, made at the first announcement of an offer, as to their plans for the company’s future research and development, its location and workforce skills. Stakeholders would be given more time to respond, and the offeror would have to report back on whether promises were kept.

Should lawmakers go further? This year’s Queen’s Speech proposed legislation to protect “critical national infrastructure”, and to scrutinise foreign ownership of such assets. Given the long-term importance of the tech sector to just about everything we do, let alone modern businesses, the government should take another look at the public interest rules that delimit intervention.

Mergers that affect national security, the quality of our media – as we are currently seeing play out with Twenty-First Century Fox (FOX) and Sky (SKY) – and the stability of the financial system are all good reasons to consider 'stepping in', as reflected in current rules. But as this country sets out on its own path, our tech assets and expertise are another sector in which we all have a stake.

Ian Smith is companies editor