Tightening takeover rules: the UK finally catches up

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Britain’s latest lockdown: the market to foreign investment

For much of the past few decades, the openness of the UK to foreign investment was seen as a virtue. 

And dealmakers and the City of London duly responded by selling just about anything they could get their hands on. Countries such as France, where politicians famously got defensive about protecting yoghurt maker Danone from inbound bids, were routinely mocked. 

Fast-forward to today and that economic openness is identified as a big source of national decline by some factions of UK society. At least, that’s the view judging by the mood of the current ruling political class, which is reckoning with the unknown as Brexit approaches.

Boris Johnson © Neil Hall/EPA/Shutterstock

Top technology companies such as Arm Holdings, a world-leading chip designer, have been sold off to foreign investors who are determining their future based on their own needs.

Then, there was the order from Boris Johnson in July reversing plans to allow Chinese telecoms equipment maker Huawei to supply kit for Britain’s 5G mobile phone networks.

Suddenly, you got the sense that the British are wishing they were a bit more French about their industrial approach (they’d never openly admit it, obviously). 

It is in that context, and one where Chinese outbound capital is deeply mistrusted, that the UK announced long-awaited national security reforms to foreign takeovers this week. 

British M&A advisers as well as political lobbyists ought to be rejoicing, Lex notes, as the UK government’s slightly convoluted new rules for foreign takeovers mean foreign bidders will pay a premium for a local field guide. 

On the other end of the spectrum are UK tech start-ups, for whom there is now less foreign capital to go around, a common exit route for the sector.

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Rather than relisting everything involved in the reforms, you can find the relevant UK government documents here and the FT’s analysis here.

DD has pulled together a series of reactions from top lawyers and other advisers in the UK market regarding the impact of the bill. On a practical level, it’s clear that those seeking to strike deals in the UK are going to need to spend a bit more on services to navigate the new measures.

  • “Bluntly, it’s a very big deal,” said Alex White, partner at policy consulting firm Flint Global. “In terms of implications, lawyers will have a field day with it. But the broader point is that it is highly political and it is a new tool for politicians to use . . . I expect there will be high-profile test cases soon.”

  • “Ultimately, they are trying to ride two horses,” said Lisa Wright, partner at Slaughter and May. “One to get control in the areas they need, whilst two, letting everyone else go about their business and keeping the option to call them in if needed.”

  • “By introducing a new standalone foreign investment regime in the UK to act as Cfius’ transatlantic cousin, it brings the UK into line with the approach adopted by many of its international peers,” said Nicole Kar, head of UK competition at Linklaters.

  • “The UK is late to the party on this,” added Michele Davis, a competition partner at Freshfields. “In the old days, foreign spies were focused on government intelligence but that has shifted to commercial intelligence.”

  • “The challenge will be to constrain its use to pure national security as opposed to political or industrial policy questions . . . the government will need to operate these rules in a way that doesn’t undermine that,” said Scott Hopkins, head of UK public M&A at Skadden Arps.

  • The legislation “encourages co-operation between the US and its allies, I would expect the new [Biden] administration to pursue more co-operation as the west tries to mitigate the challenge posed by Chinese strategic investors,” said Ivan Schlager, a Washington-based partner at Kirkland & Ellis.

Covéa/Scor: insurance M&A gets messy

Insurers are meant to be boring and reliable. But two groups in France are testing that theory: on Tuesday, the boss of French mutual group Covéa was ordered to pay for damages after a hostile takeover bid for reinsurer Scor in 2018, writes the FT’s David Keohane in a dispatch from Paris.

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A commercial court in the French capital ruled that Covéa’s chief executive Thierry Derez had abused his position as a director of Scor while preparing the takeover attempt, and will have to cough up nearly €500,000 in damages, while Covéa is on the hook for closer to €20m. 

Thierry Derez has been eyeing a push into reinsurance since 2011 © FT Montage/ Thierry Borredon

The Scor-Covéa saga was anything but the typical bland insurance industry fodder: banks were sued, confidential documents were published as evidence of foul play, and, crucially, Derez was accused of telling his advisers about Scor’s plans to merge with a rival — allegedly in a ploy to kill that deal and push forward his own.

Covéa, which still owns over 8 per cent of Scor, is appealing Tuesday’s ruling, saying in a statement that it “contains serious and multiple errors of appreciation, both in fact and in law”.

Scor, meanwhile, has two other cases in flux related to the takeover attempt: a criminal case against Derez and Covéa, and a fight against Covéa’s adviser, Barclays, in the UK.

No matter the cases’ outcomes, the legal backlash prompted against Covéa by Scor and its chief executive Denis Kessler, known as a charismatic and larger than life figure in Parisian business circles, makes another takeover attempt ever more unlikely.

Denis Kessler © Reuters

That means Derez might not get the big deal he was angling for. After being rebuffed by Scor, Derez sealed a $9bn deal with Bermuda-based reinsurer PartnerRe, only to watch it collapse as a result of the pandemic.

A recently signed partnership with PartnerRe seems more Covéa’s speed for now.

Louis Dreyfus/Abu Dhabi’s ADQ

After months of speculation, Margarita Louis-Dreyfus, the Russian heiress controlling Louis Dreyfus Company, has agreed to sell a 45 per cent stake in the agricultural trader to Abu Dhabi state-owned holding company ADQ.

In the end, it was a deal that looked good for everybody.

The cash takes some of the pressure off Louis-Dreyfus, who used her stake in the company as collateral to borrow $1bn and buy out other Dreyfus family members. As an added bonus, Louis Dreyfus Company gains a long-term supply agreement with ADQ for the sale of agricultural commodities to the UAE.

Abu Dhabi and ADQ successfully secured access to the global grains market after the pandemic heightened worries over food security. 

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And let’s not forget the fees for advisers Credit Suisse and Rothschild.

Margarita Louis-Dreyfus © Tolga Akmen / FT Commission

The agreement was the first bit of good news coming out of the company for several years — weighed down by heavy debt, the global agricultural trader has struggled with low grain and soyabean prices, which were exacerbated by a deadly virus that decimated the Chinese pig herd. A series of shake-ups to its senior executive line-up didn’t help things.

The deal marks another chapter in the incredible rags to riches story for Louis-Dreyfus. But there are still reasons for caution about how the partnership with the controlling shareholder and the new investors will evolve.

The terms of the sale were not disclosed, but at the end of June, LDC’s equity value was $4.5bn, according to company results. A portion of the proceeds — a minimum of $800m — will be ploughed back into the business, which had adjusted net debt of $3bn in June.

Job moves

  • Carlos Gonzalez-Cadenas, current chief operating officer of GoCardless and former chief product officer of Skyscanner, will join Index Ventures as a partner in January.

Smart reads

The Nasdaq whale takes a dip Here’s a look inside the SoftBank unit that has been speculating wildly on technology stocks and managed to rack up some serious losses. (FT)

Passive aggressive The Covid crisis was forecast to champion the stockpickers and bond kings crafting strategic investment decisions in tune with the unprecedented market tumult. But 2020 proved to be another lacklustre year for active management, sending investors flocking to passive strategies as active managers consolidate amid dwindling assets. (FT)

News round-up

TikTok challenges Trump order ahead of US divestment deadline (FT)

Former Kodak executives given millions in stock for options they did not own (FT) 

Kaz Minerals buyout faces investor opposition (FT) 

China tech stocks tumble after regulators step up antitrust pressure (FT + Lex

Airbnb said to delay IPO filing to distance It from election (BBG) 

PureGym lenders muscle out of troubled loan thanks to Covid vaccine boost (FT) 

China’s banking regulator signals tougher fintech antitrust laws (FT)

Inside BioNTech-Pfizer’s groundbreaking Covid vaccine (FT)

Amazon accuses Future of insider trading as it seeks to block Reliance deal (Reuters)



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