Kraft case showed limits to UK’s power to intervene

The abrupt withdrawal of the $143bn bid for Unilever by Kraft Heinz has sent a wave of relief through the UK government — but the episode will serve as a warning to Theresa May after the prime minister’s pledge last year to do more to block predatory takeovers when British jobs are at stake.

Immediately before she became prime minister last July, Mrs May made a speech on the economy that named two big deals: the 2010 takeover of Cadbury by Kraft Foods, and the failed bid in 2014 by US drugmaker Pfizer to buy its British rival AstraZeneca.

Kraft Foods, which later split off its snacks business, reneged on a promise to retain factories and jobs in Britain.

When UK companies were bought or faced closure, Mrs May said, “workers have a stake, local communities have a stake, and often the whole country has a stake”.

Unilever, an Anglo-Dutch company, has 7,500 staff in the UK, based at its London headquarters and three research facilities at Port Sunlight, Colworth and Leeds.

A proper industrial strategy, Mrs May added, would not automatically block foreign takeovers of British companies “but it should be capable of stepping in” to defend key sectors.

The Kraft Heinz bid for Unilever had opened Mrs May to criticism that she was presiding over a fire sale of UK plc thanks to the sharp fall in the pound since the Brexit vote. But while Unilever is safe, it is not the only case where the UK government is having to seek details of a foreign company’s intentions — nor the only case to illustrate the limits to what Mrs May can do to intervene.

The prime minister faces another challenge to UK manufacturing with plans by French carmaker PSA to acquire General Motors’ European operation Opel, which includes Vauxhall of the UK. The prime minister is due to meet Carlos Tavares, PSA’s chief executive — a renowned cost-cutter — next week as talks between the two businesses move towards a conclusion.

Greg Clark, the UK business secretary, travelled to Paris last week to offer PSA, owner of Peugeot and Citroen, assurances comparable to the ones given to the Japanese carmaker Nissan, in an effort to save the Vauxhall plants at Ellesmere Port and Luton.

Vince Cable, the former business secretary, called the announcement that the Unilever bid was off “welcome news”, but added: “The problem remains that large numbers of less famous names than Unilever are in play simply as a consequence of the heavy devaluation of the currency.

“There remains a strong argument for the government to tighten up the public interest test for takeovers, given the problem will recur.”

Mr Cable said particular attention should be paid to deals that affected the UK’s standing in science and technology.

A Number 10 spokesman said on Sunday that Mrs May was still committed to reviewing takeover rules, as stated in her speech last July. “The prime minister has said the government should be ‘stepping up, not stepping back’ where questions of national interest arise.”

Chuka Umunna, the Labour MP and former shadow business secretary, said he was bidding “good riddance” to the Unilever deal. “The risk of asset-stripping had this takeover proceeded looked high, whilst the likelihood of this delivering long-term economic benefits for the working people of this country seemed low,” he added.

Despite such calls for a stouter defence of British jobs, Philip Hammond, the chancellor, has argued strongly that if the UK is serious about forging a future outside the EU as a global trading champion, it cannot intervene to prevent flows of foreign investment. “We can’t go down the Danone route,” Mr Hammond said at a cabinet meeting last October, referring to action taken by the French government a decade ago that appeared to be intended to prevent a takeover of the yoghurt maker Danone.

The Unilever battle also served as a reminder of the legal constraints on the UK government. British ministers are only allowed by law to prevent foreign takeovers on grounds of national security, financial stability and media plurality. They can, however, use other policy levers such as state industrial assistance, research grants and infrastructure to try to win concessions from a foreign bidder in a takeover.

The UK government’s recently launched industrial strategy includes a promised new regime to cover foreign investments in “critical national infrastructure”, although that is expected to focus on sensitive sectors, especially nuclear power.