Few Foreign Takeovers in U.S. Are Hostile, GAO Says

Friendly acquisitions of U.S. companies by foreign investors are on the rise, but hostile takeovers by foreigners are still rare, a congressional report says.

The General Accounting Office, the investigative and auditing agency of Congress, said foreign acquisitions as a share of all takeovers have increased from 6% in 1984 to 9% last year to 13% in the first half of this year.

However, of the 1,281 foreign takeovers during the 4 1/2-year period, only 17 were hostile, or resisted by the target company’s board, the GAO said in a letter to Rep. Byron L. Dorgan (D-N.D.)

Dorgan, a member of the tax-writing House Ways and Means Committee who has proposed tax measures designed to curb hostile takeovers, said in an interview Monday that he is concerned by both the increase in hostile mergers generally and by increasing foreign investment in the United States.

The steady rise until last year of the U.S. trade deficit has put more dollars in the hands of foreigners, who have in turn spent them on investments in the United States.

Foreign Investment

Much of the foreign investment has been in real estate and government securities, but Dorgan said the GAO’s figures indicate that foreigners also are buying up U.S. corporations.

“I think that raises some general policy questions that Congress has to address. . . . If you have broad foreign ownership of American assets, the question is, Who are Americans working for? Where is the income stream from those assets directed?” Dorgan said.

Other economic observers, among them Federal Reserve Board Chairman Alan Greenspan, say foreign investment can be seen as a vote of confidence in the strength of the U.S. economy. They point out that foreign investment in American firms creates jobs for U.S. citizens.

Between 1984 and mid-1988, there were 25 attempted hostile takeovers by foreigners, and 17 of them were successful. That compares to a total of 77 hostile takeovers out of 191 attempts.

Dorgan said the relative success rates--68% for foreign hostile bids, compared to 40% for contested bids generally--indicate that foreign tax laws or some difference in regulation may give foreign bidders an advantage over U.S. bidders.

British firms accounted for eight of the 17 foreign unfriendly mergers. Three were by Canadian companies, two by French firms and one each by Dutch, Japanese, Swedish and Swiss investors.