Comcast’s £22bn bid for Sky and Takeda’s £46bn swoop on Shire – both of which were made official on 25 April – mark a first for the UK’s blue-chip market. Never before have two FTSE 100 companies been subject to a takeover offer on the same day.
The bids also form part of a rush of dealmaking that has swept the global financial markets this year. In the first three months of 2018, $1.12 trillion-worth (£823bn) of mergers and acquisitions (M&A) were agreed, according to data from Dealogic, beating pre-financial crisis highs. And global economic growth, the availability of cheap borrowing and strong stock prices – which can be used as currency in mergers – mean the pace of M&A looks likely to continue.
The UK has been a particularly attractive market for foreign investors, as a combination of high-quality companies and low valuations has allowed overseas companies to pick up bargains. In 2016, the total value of deals involving a UK takeover by a foreign company hit £190bn, according to data compiled by the Office for National Statistics, dominated by the acquisitions of FTSE 100 groups ARM, Rexam and SABMiller. That year, 262 companies were acquired by an overseas peer, the highest since 2008, falling only slightly to 254 in 2017. Meanwhile, if Shire and Sky gain approval (which is by no means a given), they will mark the fifth and sixth FTSE 100 takeovers by a foreign company in two years. That’s just one short of the total number of foreign acquisitions between 2008 and 2015.
Consolidation is accelerating despite a regulatory environment that remains uncertain. A report produced by international law firm Allen & Overy found that 38 deals were either prohibited or abandoned following political intervention in 2017, up from 31 in the prior year. Granted, that’s still only 5 per cent of global M&A, but public and political scrutiny of consolidation remains on the rise, especially in high-value deals involving large global conglomerates. This is particularly notable in the US, where Donald Trump has attempted to block the AT&T/Time Warner merger, and Europe, where competition commissioner Margrethe Vestager last year rejected Deutsche Börse’s proposed bid for the London Stock Exchange Group (LSE).
Even the traditionally anti-protectionist UK government has stepped up its scrutiny. True, investigations by the current administration have been far from consistent, but in 2017 more deals were blocked or adjusted than ever before. That is perhaps why Comcast, in making its bid for Sky, was keen to highlight that it is a more appetising suitor than Sky’s other would-be owner, Twenty-First Century Fox (US:FOXA). The offer made by the latter (which is currently controlled by the Murdoch family but is in the process of being acquired by Walt Disney) has endured intense government scrutiny since it was made in December 2016.
It’s true, Comcast is a far more appealing candidate when it comes to media plurality (the Murdochs already have control of other UK news outlets via News Corp, publisher of The Times and The Sun), but it could still pose a problem for domestic creative industries, of which Sky is one of its biggest benefactors.
Political intervention in the Melrose/GKN takeover did set a precedent for future takeovers of UK companies: a requirement for bidders to provide binding undertakings on investment in UK skills and technologies. Sky employs 30,000 Brits, meaning Comcast’s offer is likely to feel the heat of political intervention, even if it is a 16 per cent premium to the bid made by Fox.
As for Shire, it has been just four years since the last time a foreign company tried to get its hands on the company’s impressive portfolio of medicines. Then, it was the US government that opposed a takeover of Shire by AbbVie, due to concerns over loss of revenue through a tax inversion. Shire, with its Irish headquarters and US research facilities, doesn't seem to be a company the UK government is as concerned about keeping on British markets.
