Financial Times: Man bites back at the dog in cross-Channel deals: Mergers and acquisitions: “That is likely to lead to bigger and bigger bids: some fund managers are muttering, for example, that even giants such as Royal Dutch Shell could come into play before the current cycle is out.”: Saturday 17 Sept 2005

By Gillian Tett

Published: September 17 2005

Mergers and acquisitions

Dog bites man is not much of a story; however, man bites dog certainly is.

So, too, with cross-Channel deals. In recent months, a host of non-UK companies have rushed to buy British names: witness Grupo Santander's purchase of Abbey National, Saint-Gobain's bid for BPB or Deutsche Post's move on Exel.

But thus far there have been few bids the other way - or at least not until yesterday's news that LogicaCMG, the Anglo-Dutch computer services group, wants to buy France's Unilog for about €931m (£630m). This seems a distinctly brave move, given the xenophobic noises recently emanating from the French government. It is thus striking for rarity value alone but do not expect it to swing the direction of the cross-Channel tide any time soon.

One reason why European companies are coming to the UK is its relatively better economic prospects (at least compared with the dismal eurozone). Another is that the UK is arguably the most free market for corporate control in the world - and looks set to remain that way, however much some Little Englanders might dislike this foreign onslaught. That is undoubtedly good news for London-based investment bankers. It should also be good for the productivity of UK plc, insofar as a change of control - or the threat of change - will help focus management minds.

However, you do not need to be a Little Englander to feel uneasy about some implications of this trend. For one thing, it is likely to exacerbate an already very concentrated stock market. At present, the 10 largest stocks account for 45 per cent of the UK index, double the proportion in the US. For another, the trend risks eventually stoking up something of an M&A bubble in the future. After all, what is driving this buy-out activity is not just the existence of a free market for corporate control but the presence of virtually free (in real terms) money swirling around the global financial system.

Thus far, it has been primarily private equity firms that have responded to this mountain of cheap cash with a blitz of buy-outs. But now strategic buyers are also entering the frame. That is likely to lead to bigger and bigger bids: some fund managers are muttering, for example, that even giants such as Royal Dutch Shell could come into play before the current cycle is out. While acquisition prices remain reasonable at present, it is a fair bet they will rise in the future - and, in some cases, beyond what fundamentals can justify, whatever side of the Channel you are sitting on. 

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