UK plc wraps itself in the American flag

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The Independent Online

Sometimes quietly, sometimes loudly, British companies are taking an ever-larger stake in the United States, prompted by the need for new markets, the reduction of industry barriers and opportunities for growth. The rate of increase of foreign direct investment (FDI) has slowed since last year, but this year's numbers are still likely to be very impressive.

Sometimes quietly, sometimes loudly, British companies are taking an ever-larger stake in the United States, prompted by the need for new markets, the reduction of industry barriers and opportunities for growth. The rate of increase of foreign direct investment (FDI) has slowed since last year, but this year's numbers are still likely to be very impressive.

Intriguingly, for many of these companies, the deals are not just additions to capacity or the purchase of market share, they are about redefining the very nature of their business.

Britain is the leading investor in the US, with an inflow of $151.3bn in 1998, or nearly a fifth of total FDI in the US. Income payments on direct investment in the US brought back to the UK more than $11.4bn in 1997, British Government figures show. FDI accounts for more than 6 per cent of US production, meaning British companies have more than 1 per cent of the US economy, and a substantially larger proportion of US exports.

Britain has half of all foreign direct investment in petroleum - and that would rise substantially if BP-Amoco finalises the ARCO deal. Britain also has strong positions in chemicals, insurance and utilities.

The highest-profile deal of the last two years was BP's audacious merger with oil giant Amoco, but there have been many others. Vodafone AirTouch has merged its wireless operations in the US with Bell Atlantic. After Bell's tie-up with GTE, this will form the largest wireless company in America.

BT has tied up Concert, its joint venture with AT&T, and the formation of Baesystems from BAe and the defence interests of GEC Marconi involved the consolidation of US investments by two companies into one.

In the utilities sector, there is now lively two-way traffic across the Atlantic. Scottish Power finalised its merger with PacifiCorp of Oregon at the end of last month, and National Grid has been picking up transmission and distribution operations in America.

British Energy, the nuclear generator, has been on an extensive acquisitions programme through AmGen, its joint venture with PECo of Philadelphia, and BNFL picked up the nuclear assets of Westinghouse. Kelda Group, formerly known as Yorkshire Water, bought the Connecticut water supplier Aquarion for $444m, and Thames Water has bought New Jersey utility E'townCorp for £575m. The Post Office bought Citipost Group, a New York-based document-publication-delivery company, for $40m. Royal Mail US Inc says it is the fourth largest international mailer in the US.

What is particularly striking is that many of these deals are by companies which, until a few years ago, were government-owned or, in some cases, still are. Some retain that telling letter "B" in their names: British Energy, BNFL, Bae, BA, BT and BP.

One reason for privatisation was that the sectors in which they operated were rapidly becoming more global, and they have exploited strong market positions at "home" to extend their presence abroad. In some cases, regulatory problems at home have prompted a need for expansion in other markets.

Nobody wants to give the impression of a British "invasion", and the deals excite little attention, certainly compared to the wave of opposition to Japanese investment in the 1980s. They are often presented as mergers, even when the reality is that one company is swallowing the other. Many are done through share swaps. The result is often to leave the British companies with more business in America than at home, or even in Europe.

It is hard to avoid the impression that a new class of Anglo-American economic powers is being created, companies as at home in the US as they are in Britain. The scale of US investment into Britain, and its duration, means the link works both ways: companies such as Ford and IBM have long been local operators, not just foreign investors.

America has always been an attractive destination for British investment. Indeed, when the stock of British FDI overtook that of Japan in 1994, Britain was reclaiming a place which it had held for centuries. There are some restrictions on overseas investment - airline ownership (as BA has discovered to its cost), telecommunications, and broadcasting - but in general, America is open. It is technologically sophisticated, a vast market, and one with which British companies normally have some affinity.

But there is another reason why the direction of movement has been westwards rather than eastwards to Europe. One British official says: "You can define it in one word: Mannesman." The attempt by Vodafone AirTouch to buy into the German market has met serious opposition of a kind no British firm would expect in the US.

But this shift into the US raises fundamental issues of identity. In many respects, it is becoming harder to discern the nationality of many large international companies. Once, to talk about British "multinationals" was misleading: they were British companies with extensive operations abroad, often in Commonwealth countries, but with headquarters in Britain, tax paid to the Inland Revenue, listings on the London Stock Exchange and most of their key officials British.

As far as the US government is concerned, they are still foreign, and several of the largest deals have shown the problems that still await investment. BA ran into a wall over its attempt to win antitrust immunity for its tie-up with American Airlines. BP-Amoco will have an uphill battle to persuade the regulators that its acquisition of ARCO will not harm competition in its West Coast market, and its struggle to persuade the Alaskan government that the deal would not harm the state's interests involved serious horse-trading. Bae's acquisition of GEC Marconi's defence interests raised some concerns in the Pentagon about competition, and about access to European markets.

The problems in acquisitions and mergers, in a country the size of the US, often come from specific local concerns, not broader competition issues. Kelda is dealing with local environmental worries about Aquarion's watershed land. BP was pressured to maintain Amoco's tradition of corporate donations to local artistic and social causes in Chicago when it bought into the company.

The "Bs" have at least considered whether their national identity amounts to an asset or a vulnerability, as they become global - and that means, for most, American - companies. Baesystems is anxious to create the idea that it is as American as any other company - from the standpoint of the Pentagon - when it comes to procurement decisions.

Many Canadian companies, like the former Northern Telecom, now Nortel, obscure their national origins, and British companies are following suit. Bae changed its name to Baesystems; and the initial letter in BT no longer stands for anything. BA tried changing the colours on its tail fins. BP was careful, calling its new venture BP-Amoco; if the Arco deal goes through it may, like BAe, change again, perhaps taking the word "Atlantic" from Atlantic Richfield.

In a way, this is the most highly symbolic case of all. BPwas the creation of the British government when the Navy was switching to diesel from coal and London was suspicious of the national ties of Royal Dutch-Shell, an Anglo-Dutch company. It was founded to secure Britain's energy independence, through oil reserves in what is now Iran, as tool of British policy.

Like many of the once-nationalised companies, it is much bigger than that now. But that will raise increasingly complex questions about what, exactly, that B stands for, if it stands for anything at all.