Best Foreign Buyout Policy Is Self-Interest
Foreign investment in the United States grew again last year and, contrary to what you might expect, the largest investors were not the Japanese but the British--as they have been for two centuries.
With acquisitions of Pillsbury, Brooks Bros., Farmers Insurance and over 400 others, British companies invested $32.5 billion in U.S. business in 1988, more than double Japan’s $12 billion-plus.
In all, foreign business investors poured about $50 billion into the United States last year, up from $47.3 billion in 1987 and $35.8 billion in 1986.
To put that in perspective, total 1988 foreign investments come to less than the price of two RJR buyouts and much less than the $200 billion in merger deals originated by U.S. investment bankers.
Perspective is needed because concerns are rising about foreign investment--as if the fact that it’s foreign makes it suspect. The real question should be not whether an investment is foreign, but whether it makes sense--in terms of U.S. interests in a harsh world economy.
Foreign doesn’t mean strange; foreign owners are as solicitous--or neglectful--of employees and communities as U.S. owners in this buyout-happy age. U.S. ownership of Firestone Tire didn’t do as much for that company as its Japanese buyer Bridgestone is now doing.
And the U.S. economy often gains whether foreign companies come for the long-term or for just a quick buck. More than 150 years ago British investments built the Erie and other canals, even though the investors lost money. Later the British invested in railroads and Western ranchlands--and herds and railroads grew, even though the investors lost money again.
Today they are investing in everything from Mary Tyler Moore sitcoms to Murray bicycles.
So widespread is Britain’s presence that Japanese officials often ask why their own investments arouse so much scrutiny when the British come here without hassle.
One big reason, of course, is that Japanese companies are seen as a competitive threat--and British companies aren’t.
Which doesn’t mean that British investments can’t threaten in other ways. Last year, Beazer PLC, a British construction firm, bought Pittsburgh’s Koppers Co., promising to maintain Koppers’ employment and civic contributions. Six months later, Beazer has sold half of Koppers’ business, and effectively ended its civic contributions.
So Pittsburgh is chastened--but Wall Street is cheering. “Koppers was underperforming,” says analyst Charles Rose of Oppenheimer & Co. “And in the global economy, any company that gets a poor return on capital is vulnerable.”
Maybe so, but a question arises. Why is it always U.S. companies? Why doesn’t international finance break up “underperforming” companies in Britain and Japan? Because their governments wouldn’t allow it. “Foreign acquisitions are often barred just because they’re foreign,” explains Mark Dixon, publisher of a British-American business newsletter. That can be economic blindness--but sometimes it’s national self-interest.
As U.S. shareholders and political officials may soon find out. Britain’s acquisitive Hanson PLC has bought an 8.4% interest in Cummins Engine Co. Cummins controls 50% of the world market for heavy-truck diesel engines because its devotion to manufacturing and competitive grit in the last decade stood off challenges from Japan’s Nissan and Komatsu.
But profits and the stock price have suffered, and Wall Street analysts are salivating at the prospect of a takeover by Hanson--a conglomerate put together by two smooth-talking speculators, Gordon White and James Hanson, out of such varied products as Hygrade frankfurters and Kaiser cement.
Hanson says it has no present plans to seek control. Which is great, if true. White, who boasted to Fortune magazine that he never visits factories, can’t do much for a symbol of U.S. manufacturing’s comeback.
Clearly Cummins must wring more profitability out of its $3 billion in revenues. But clearly, too, investors like Hanson and its fans on Wall Street offer nothing but menace to such a company--and to U.S. interests. Again, the issue is not whether an investment is foreign, but whether it makes sense.
