Watch out, Boone Pickens, Carl Icahn, David Murdoch, Irving Jacobs, Robert Haft, Paul Bilzerian and other corporate raiders--the British are coming. And the Japanese, the Germans, the Swedes, the French and even the Swiss.
After the stock market collapse in the last quarter of 1987, there was a lull in takeover activity. But as 1988 opened, the big, secretive Swiss pharmaceutical house, F. Hoffmann-La Roche & Co., of Valium and Librium fame, made a bid of more than $4 billion for Sterling Drug, maker of Bayer aspirin, Phillip's Milk of Magnesia ("Mom knows best") and Lysol.
Ivan Boesky may be going off to serve time in Lompoc, but the arbitragers were cheering again on Wall Street. And eight days later they were on their feet again, as BAT Industries, a big British company that ranks as the world's largest privately owned seller of cigarettes, came through with a $4-billion-plus bid of its own, this one for Los Angeles-based Farmers Group, the nation's third-largest writer of auto and homeowners insurance. Although the foreigners' offers were being turned down, the "arbs" were back in business.
That money is coming in from abroad to buy American companies should not be surprising. The double whammy effect of lower stock prices and a plunge in the value of the dollar have made U.S. properties dirt cheap to foreigners. They're buying because the price is right. And their purchases are likely to hit record levels in 1988.
How will consumers be affected by this shopping spree by overseas buyers? Well, it won't be a new experience. American consumers have been buying made-in-Ohio Hondas, made-in-San-Diego Sonys and made-in-Wisconsin Kikkoman soy sauce in huge quantities. And for years now they have been spreading French's mustard on their hot dogs without knowing--or caring--that it was made in Rochester, N.Y., by a British-owned company. Indeed, those people who have been decrying imports will no doubt welcome foreign takeovers since they keep companies alive and save jobs.
From a long-range point of view, however, they do pose problems, similar to the ones that have confronted European, Asian and Latin American countries when they faced a rising tide of investment by U.S. companies. It comes down to the fact that important decisions about your life are now being made thousands of miles away by people in other countries. They tend to do what's good for them--and being based overseas, they are not exactly accountable to American public opinion.
A foreign takeover also removes a company from public view. If it was a publicly traded firm, its shares are delisted. It no longer has to issue an annual report. And if the local symphony or hospital or museum comes around looking for support, the decision may have to be bucked over oceans to London, Tokyo, Basel or Dusseldorf.
The flow used to be decidedly one way, with U.S. investments abroad dwarfing foreign investments here to the point where it gave rise 20 years ago to "The American Challenge," a book by the French writer and editor, Jean-Jacques Servan-Schreiber, who sounded a call to arms. Servan-Schreiber warned that if the Europeans didn't get their act together, they would be taken over by American multinationals.
That scenario has not been enacted. Not only have American companies failed to become the dominant economic force in Europe, but a number of U.S. firms cited by Servan-Schreiber as embodying that threat (Union Carbide, Chrysler, Celanese, Remington Rand) have beat a retreat from Europe. Meanwhile, European companies have mounted an unprecedented invasion of the United States. And Japanese companies, which were barely mentioned by Servan-Schreiber, have moved massively into the U.S. and European marketplaces.
The pace of foreign investment in the U.S. accelerated sharply in 1986 and 1987. Sweden's Electrolux became the world's largest home appliance maker by acquiring Cleveland's White Consolidated Industries (Frigidaire, Westinghouse, Kelvinator, Gibson). Switzerland's Nestle became the world's largest food company by absorbing Los Angeles' Carnation. Grand Metropolitan of Britain became the world's largest spirits company by scooping up Heublein. British Petroleum became the world's largest producer of animal feeds by acquiring Purina Mills from Ralston Purina. Germany's Bertelsmann became the world's largest publishing company by taking over Doubleday. London's Saatchi & Saatchi became the world's largest advertising agency complex by acquiring a clutch of American shops: Compton, Ted Bates, Backer & Spielvogel.
As a result, a lot of brands that you may think of as American are not. Here are some of these brand names and their foreign owners: Mounds and Almond Joy (Cadbury-Schweppes), Vaseline Intensive Care and Ragu spaghetti sauce (Unilever), Travelodge (Trust House Forte), Saks Fifth Avenue and Marshall Field (BAT Industries), Ball Park Franks and Smith-Corona typewriters (Hanson Trust), Hills Brothers coffee and Lean Cuisine (Nestle), the Chateau St. Jean and Firestone vineyards (Suntory), the Mark Hopkins Hotel, Alpo dog food and Beaulieu vineyards (Grand Metropolitan), Alka-Seltzer (Bayer) and Calistoga mineral water (Perrier).
Japanese money was coming into the United States at the rate of $4 billion a month in 1987. Much of it went into real estate. Among the properties Japanese interests own are Arco Plaza in downtown Los Angeles, the Exxon Building in New York's Rockefeller Center and Citicorp Center in downtown San Francisco. The Japanese have also bought 12.5% of investment banker Goldman Sachs (Sumitomo Bank), 13% of Shearson Lehman Bros. (Nippon Life Insurance) and 100% of preppy clothes maker J. Press (Kashiyama).
As yet, Japanese companies have not made many acquisitions of U.S. manufacturing companies, but that is expected to change. With the yen in such a powerful position versus the dollar, the Japanese will be buying more and more American companies. American investment bankers are already knocking on doors, explaining to Japanese corporate leaders that it's not disgraceful to take over another company.
Foreign investors can count on support from the American banking community. When F. Hoffmann-La Roche made its hostile bid for Sterling Drug, it had at its side Morgan Guaranty Trust. The fact that it had a longtime banking relationship with Sterling did not dissuade Morgan from coming to the aid of the Swiss.
So, we can certainly look forward to more foreign takeovers of American companies in the coming year. Look for Germany's electronics giant, Siemens, to bid for Advanced Micro Devices; Italy's Beretta to go after the Colt firearms company; Germany's Hoechst to stalk Upjohn; France's Pernod Ricard to make a stab at Gallo, and Japan's Yamaha to punch the keyboard of Baldwin Piano.
And, in a move uniting two virulent trends--foreign takeovers and privatization of government-owned entities--imagine Britain's Lonrho to make a bid for New York City's Off-Track Betting Corp.