Don't worry about selling the family silver - just buy more

Andreas Whittam Smith on foreign takeovers
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The Independent Online
I DON'T think we should mind at all that three British businesses, each household names founded at the turn of the century, look about to come under foreign ownership. I am referring to Rolls-Royce Motor Cars, to the RAC motoring organisation and to EMI, one of the biggest record companies in the world. All three have received take-over offers from overseas. Rolls-Royce is the subject of a battle for control between BMW and Volkswagen and the price may reach pounds 500m. The RAC breakdown service is being sold to an American company, Cendant, which, having just bought National Car Parks and the Green Flag breakdown service, wants to create a powerful rival to the Automobile Association. EMI is in a different league. We are talking billions of pounds rather than hundreds of millions. The secret suitor is probably Seagram, the giant Canadian drinks and music publishing group.

Concern about foreign take-overs is not limited to third world countries worried about exploitation. I have a bit of sympathy with Canada, where the US has a commanding presence. The fear that the Canadian economy could become a collection of branch offices for American multinationals is understandable. It generates a feeling of powerlessness. To take a local example, you find the same sentiment on Merseyside, which long ago lost the headquarters of renowned businesses such as Unilever, Royal Insurance and Cunard. I am less impressed by French hostility to foreign ownership, which appears to be chauvinistic. France's desire always to find a "French solution" when companies find themselves in receipt of foreign take-overs has weakened rather than strengthened its industry. The French are much less successful than they should be in international banking and in information technology for this reason. Among advanced industrial nations, however, Japan is the most extreme example of resistance to foreign ownership. The door has been tightly shut, partly by the prevalence of cross-shareholding. But now that the Japanese way of doing business is in disarray, that may have to change. The UK and the US have the least resistance to foreign take-overs and, in turn, are the most aggressive in returning the compliment.

As a matter of fact, Rolls-Royce Motor Cars and the RAC breakdown service will almost certainly benefit from a change in ownership. Rolls-Royce's present owners, Vickers, cannot afford the investment needed to sustain the luxury car maker in the marketplace. BMW's plans include doubling the workforce to about 4,000 and tripling output to 6,000 cars a year. In the case of the RAC's breakdown service, its present owners are, after all, a West End club. It is right that the Club's 12,000 members should cash in to the tune of around pounds 34,000 each and the Club retain an endowment of pounds 30m while the business goes to owners focused on commercial considerations. Stronger competition with the AA will be beneficial for motorists.

EMI is a different proposition. It is viable on its own, albeit not doing very well. It is a record publisher, whose skill is finding and developing artistes and genres; it is a valuable intellectual property, comprising an amazing backlist ranging from the Beatles to Callas, and it is also a disc manufacturer. As a small shareholder myself, I shall be disgusted if the chairman, Sir Colin Southgate (the man also charged with rescuing the Royal Opera House) does not arrange an auction that obtains a sky- high price.

But these famous companies are going into foreign ownership. Does this really matter? It certainly irks some of the shareholders in the present British owners of Rolls-Royce Motor Cars, Vickers. At last week's annual meeting they were loudly critical of the decision to sell. They were "disgusted" and "outraged" at the disposal of a "national jewel". Nor were they mollified by the decision to return pounds 197m of the sale proceeds directly to them. Amazingly, when the chairman, Sir Colin Chandler, asked shareholders if they wanted the money returned, he was met with shouts of "no".

I have two responses to this. In the first place, British companies can come along and bid for Rolls-Royce, the RAC and EMI if they wish to do so. In particular, the price ticket for Rolls-Royce is within the buying range of the United Kingdom's top 100 companies; and the business has been unofficially on sale for many years. If you want to be disgusted about these sales, you have to blame the absence of British buyers as well as the decisions of the sellers.

Second, consider how one might invest the proceeds of the sales back into British industry and help create new, vibrant businesses. In the case of the motor industry, while nobody has been looking, so to speak, this country has created, in the past 25 years or so, a series of world- beating small companies. They manufacture racing cars for Formula One and the American equivalent, and dominate motor racing. The sector comprises a web of small, creative, highly specialised engineering companies. In their way the managers of these companies are quite as innovative and audacious as the original Mr Rolls and Mr Royce.

The same situation exists in the British record industry. While EMI is one of the big six companies which control 70 per cent of the world's record business, the United Kingdom is well represented in the remaining 30 per cent. I am not saying that creating a new record label is easy, but it is done. There is a seed-bed of exciting British ventures in music publishing out of which can emerge businesses that match EMI for verve if not for size.

In short, when a foreign buyer comes along and offers a great deal of money for a British household name, shareholders should say "thank you very much" and re-invest in something more promising. The wringing of hands and the expression of regrets about selling off the "family silver" or the so-called "Crown Jewels" is literally useless.

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