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The long-term cost of incoming M&A
A recently published report from Bambridge Accountants reveals the slump in sterling is sparking a wave of investment by the 200,000 US expats living in the UK, with a three-fold increase in the number of Americans making big investments since the Brexit vote.
This asset grab, which mainly involves property, could well be repeated in the corporate space as the pound teeters at the $1.22 mark. In the short-term this could provide a further catalyst for a FTSE 100 already buoyed as its overseas earnings carry more weight in sterling terms.
On the face of it the $47bn merger between British American Tobacco (BATS) and Reynolds American (RAI:NYSE) (21 Oct) (see page 6) and fund manager Henderson’s (HGG) £6bn capture of US peer Janus Capital (JNS:NYSE) (3 Oct) run counter to this narrative but in fact both deals are essentially reverse takeovers. Henderson has already said it will cancel its London listing and there can be no guarantee BAT won’t follow suit if its own deal goes through.
Hollowed out market
Any near-term boost from M&A needs to be weighed against the long-term impact on London as a financial market. To date the one, really big high profile victim in the wake of the EU referendum is probably ARM, with Japan’s SoftBank completing its £24bn acquisition in September but this is a big loss for a market which is already under represented in terms of the technology space.
Engineering group GKN (GKN) is one of a number of firms which look vulnerable to a bid – even if a growing pension deficit represents something of a poisoned pill to any prospective acquirer – while reports suggest US luxury brand Coach (COH:NYSE) might seek a merger with its UK peer Burberry (BRBY).
The longer sterling remains in the doldrums the greater the risk that London becomes a hollowed out market with its best names snapped up by opportunistic bids from abroad. (TS)