The weak pound has prompted a rash of takeovers of UK companies. Here’s why this is a problem

Every time the pound wobbles, we see a similar story emerging: overseas predators are trawling the UK markets in search of cheapie acquisitions. The prevailing political and economic orthodoxy in Britain is that the nation benefits from its open markets.

The fact that (almost) any company can be plucked off the UK market by any bidder is to be welcomed! We wouldn’t want to be France, which once infamously declared yoghurt to be of strategic national importance to frustrate a takeover of Danone by Pepsi under the then EU rules, now would we?

Except that maybe the French had – has – a point. This was rather underlined when Kraft Foods, now Mondelez, gobbled up Cadbury and promptly broke commitments it made in the run-up to the takeover. It also gutted the head office. And there’s another problem: don’t UK investors lose out when quality companies come off the board by dint of the pound finding itself in a slough of despondency?

During a previous incidence – sterling has had several spells of weakness, a symptom of the succession of dismal governments Britain has endured – I raised the issue with an economist I know. They insisted that we do benefit from “open markets” and they produced figures showing that the number of new companies coming to market via flotations eclipsed the number being lost. So, no problem.

But that’s not happening this time. Figures from Dealogic show there have been £41bn worth of UK companies taken over this year (the previous one also witnessed an M&A record). However, IPOs are not replacing those that depart. A paltry £574m has been raised so far. That is unlikely to change with the markets behaving like Alton Towers’ latest rollercoaster thanks to the government taking leave of its senses.

With the pound on its knees, making UK companies as cheap as Kwasi Kwarteng’s economic policy, the wave of takeovers and mergers is expected to continue apace, potentially hollowing out the UK stock market. This matters. Pension funds rely on its health to keep their promises to their members. Most private sector employees are now reliant on money purchase schemes, in which they bear the risk investment. But the vigour of the markets should, if anything, be of even greater concern to them.

There are also ISAs, which people use to save for a variety of purposes. Getting on the housing ladder, for example, which these days takes an awful lot of saving. The stock market being denuded is perhaps not at the head of the list of concerns created by Trussonomics. The impoverishment of a large chunk of the UK population so that the rich can enjoy generous tax cuts would be at the top of the list.

But that doesn’t mean that it isn’t a problem. There are those who would counter this by arguing that pension funds can, and do, invest in companies around the world. Just because Apple is headquartered in Silicon Valley doesn’t prevent you or I from buying its shares and enjoying the ride.

Except, of course, that you face currency risk as well as investment risk through your asset’s price being denominated in dollars. Sterling investors need to be able to invest in high-quality sterling-denominated assets, which are now disappearing into the hands of overseas companies or (just as likely) private equity firms.

There is also the question of corporate governance. The UK regime is by no means perfect. But its quality is still high by international standards. UK-based companies are more likely to listen to UK-based shareholders than are their overseas rivals. They are grounded in this country’s corporate culture and, to an extent, its priorities. They have roots here. And they employ a lot of people at their head offices.

Much of this is lost post-takeover. Remember Cadbury. The government does now have the National Security and Investment Act, which specifies 17 key areas of the economy in which it must be notified about potential takeovers. Blocking them is easier than it was. But who’d want to rely on the Truss government to act in the national interest?

Of course, shareholders; those pension schemes and the funds run by the UK institutions don’t have to accept deals. They can always vote them down. Some of the bigger investors in Aveva, one of Britain’s oldest tech firms, have stated their intention to oppose Schneider Electric’s planned £9.5bn acquisition of the software developer on the grounds that the bid is opportunistic and undervalues the company’s long-term potential (which it does).

But 75 per cent of the minority shareholders would have to vote against it to frustrate the deal, which is a high bar to clear. It doesn’t look like there’ll be anything along to replace the company anytime soon, so now would be a good time to act. Trouble is, can we really rely on big money managers to eschew short-term bungs in favour of their investors’ long-term interests when they haven’t in the past?