Outlook: Why we can expect more Euro-takeovers

on the spate of takeovers, Bernard Arnault and niche publishers
Click to follow
The Independent Online
Whatever the collective term is for a group of Euro-takeovers (a concordat of the blighters, perhaps), we certainly had a belly full yesterday. What with Bernard Arnault settling for blood money and dropping his objections to the Guinness/Grand Met merger, BAT Industries' decision to sell (effectively) its huge insurance interests to Zurich, the Lafarge bid for Redland, and the Reed Elsevier merger with Wolters Kluwer, we seem to have entered a new phase of merger mania - and one with a European dimension, what is more.

It is silly, perhaps, to generalise too much on the basis of four very different takeovers, each with their own special set of motives, but there are obviously some themes here. The first is the growing realisation among investment bankers that, with the narrower domestic market for consolidating mergers all but closed off by a hostile Labour government, it is important to go for a deal with a genuine European dimension to it, one that escapes consideration by domestic competition authorities and is instead examined by the more user-friendly and predictable officials of the European Commission in Brussels.

In itself, this seems to be forcing British industry away from domestic mergers and into cross-border ones. Add in the growing pressures of the single European market and the approach of monetary union, and it is obvious why companies are going this route. It may not be possible to buy market share in your own country any longer, but you can consolidate within the single market without too much interference.

For instance, it will undoubtedly be easier for BAT Industries to get the merger of Eagle Star and Allied Dunbar with Zurich cleared by Brussels than it would have been to persuade Mrs Blockit (Margaret Beckett) to allow a similar merger in Britain with Commercial Union (which was the plan at BAT Industries last year).

The same goes for Grand Met and Guinness. The European Commission is about to clear this marriage with only modest conditions attached. Had it been Mrs Beckett's call, she would almost certainly have packed it off to the Monopolies and Mergers Commission.

The second theme is an old one - pressure across all industries for consolidation and focus as markets become more international and global in nature. BAT's announcement encapsulates both pressures, demerger to allow the tobacco and insurance interests to roam free and merger to give the insurance interests a powerful new voice in Europe and beyond. The scope for cost cutting in the tie up with Zurich might not be as great as with some of the alternatives, but there do seem to be genuine synergies between the two and in so far as it is possible to judge these things on the limited amount of information available, BAT shareholders are ending up with the better half of the deal.

Finally, there is the way in which the perceived scope for cost cutting, rationalisation and consolidation in industry and commerce is driving up equity values, both here in Europe and in the US. Yesterday's 72.8 point rise in the FTSE 100 index was almost entirely down to the three big FTSE stocks directly involved in the latest outbreak of merger mania and the realisation that other big companies must now respond. We can expect a lot more of this sort of thing as the single currency approaches. Whether this is enough in itself to sustain stock prices at present buoyant levels is a rather more difficult question to answer.

Comments