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Dealmakers Will Test Johnson’s Open-Market Cred

Chris Hughes

(Bloomberg Opinion) -- The U.K.’s election of a right-wing, pro-market government with a thumping majority would certainly seem like a green light to foreign companies wanting to buy London-listed rivals. But the new political climate for takeovers may be hazier than it seems.

Boris Johnson’s administration is still only four months old, so it’s hard to know precisely how it would approach a sizable, serious, fully funded foreign takeover bid. The old chestnuts that surface now and again include an attempt on the big drugmakers, AstraZeneca Plc or GlaxoSmithKline Plc, a tilt by Exxon Mobil Corp. for BP Plc, or even a U.S. bid for BAE Systems Plc, despite the government having a veto via a “golden share.”

A proposal to take over these particular British icons would be controversial, and each has its strategic and financial obstacles (AstraZeneca is expensive; oil companies are trying to get away from oil, not buy more). Yet getting the political calculation right may prove even trickier.

Although Johnson hasn’t made the same protectionist noises as his predecessor, Theresa May, the U.K. has been taking a more interventionist stance on M&A lately. It’s now the norm for bidders in sensitive sectors to accept restrictions on how they’ll manage the assets they acquire, as seen most recently with the private-equity-led deals for defense contractor Cobham Plc and satellite operator Inmarsat Plc. The Competition and Markets Authority, the U.K.’s trustbuster, is getting tougher too. Witness its examination of Amazon.com Inc.’s minority stake in food-delivery group Deliveroo, even though the e-commerce giant would not have control.

The question is whether the current level of scrutiny is where it peaks.

Johnson is in a bind. The extra seats that delivered his majority were secured by votes potentially “lent,” to use the premier’s own phrase, from supporters of the opposition Labour Party, including those in Britain’s industrial heartlands. Johnson won’t want to alienate these voters by hastily endorsing deals that could threaten U.K. jobs or deliver prized national assets to foreign owners. Despite the Conservative Party’s longstanding laissez-faire approach to markets, the nationalist undercurrent remains strong in British politics.

On the other hand, if the bearish analyses of Brexit's impact prove true, the U.K. economy is in for a difficult time in the years ahead. Johnson will want to attract foreign investment, and flat resistance to any overseas bid would surely be a deterrent to the international business audience. Potential U.S. bidders may judge that Johnson will also want to keep President Donald Trump happy if he is to secure the wide-ranging free-trade deal he campaigned on.

Johnson, then, will be torn between his new Labour supporters and global business. Predicting where he’ll side isn’t easy. But when push comes to shove, and with the next election years away, it seems likely that he’d follow the money. Logic suggests that deal-hungry CEOs will now feel more confident testing Britain’s open-market credentials.

To contact the author of this story: Chris Hughes at chughes89@bloomberg.net

To contact the editor responsible for this story: Timothy Lavin at tlavin1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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