The British Have Come, Seen, Bought

John Campbell was looking for the cash to pay for expanding his chain of eight Orange County car dealerships.

Lex Service PLC, the largest auto dealer in the United Kingdom, with about 70 dealerships, was looking to America to expand. Campbell contacted Lex and, within 6 months, they sealed a deal that gave Lex half of Campbell Automotive for $13.5 million.

“Our corporate philosophies, or corporate cultures, and our marketing were almost identical,” Campbell said. “We felt very compatible, and now, after 6 months, things couldn’t be working any better.”

The transaction provides a local glimpse at a mighty British juggernaut that has hit the United States through most of the 1980s.

With a long history of investments in U.S. firms, the British have been buying companies here at a record pace that far outdistances that of any other foreign country. And while the lower value of the dollar has helped to spur the buying spree, cultural and historical ties, as well as an economic revival under Prime Minister Margaret Thatcher, have helped to sustain it.

In the last 2 years, the British have pumped in more than $60 billion to buy 398 U.S. firms, including Farmers Group in Los Angeles, which BAT Industries bought for $5.2 billion, and Pillsbury Co. in Minneapolis, for which Grand Metropolitan paid $5.75 billion.

“The British have found a way to recapture the American colonies,” Arthur D. Perrone Jr., vice chairman of the Geneva Corp., said half jokingly. Geneva is an Irvine firm that arranges mergers and acquisitions.

Last year British firms spent $32.5 billion buying U.S. companies while the Japanese, their nearest foreign competitor for U.S. assets, spent about $12 billion, according to the British American Deal Review, which tracks foreign investments here.

Following them were Canadian investors who, on the strength of Campeau Corp.’s $6.6-billion acquisition of Federated Department Stores, paid $8.2 billion for U.S. corporate assets last year. West Germans spent $3.1 billion, according to the Deal Review.

In 1987, the British paid $31 billion to buy U.S. corporations, while the Japanese paid $6.2 billion, the West Germans spent $4.1 billion and the Canadians $2.4 billion.

What makes the British buying habits more remarkable is that they have accumulated their huge stake with barely a complaint from the U.S. public, which has been more suspicious and critical of the intrusion of investors from other countries, particularly from Japan.

Not only are U.K. investors outspending those from Japan and other countries in gross terms, they are spending a great deal more in proportion to the British economy.

“In relation to their own economy, the British are spending nine times more than the Japanese are spending,” said Mark Dixon, editor of the Deal Review.

“The real story is that Americans don’t realize that the Japanese are not at all the biggest buyers of U.S. corporate assets.”

The Japanese point to such statistics to show that they have been unfairly portrayed as trying to buy America, when the British already seem to own it.

The perception that the Japanese are invading U.S. board rooms can be traced to cultural differences and timing, said Hiroyuki Saito, executive vice president of Mitsui & Co., a Japanese trading firm with offices in Los Angeles.

“We have come here all of a sudden,” Saito also said about Japanese investments. “The British have been coming here for 200 years.”

He said he suspects that prejudice against the Japanese also exists in the public’s mind, at least subconsciously.

“That’s very difficult to get rid of,” he said. “The Japanese have a different religion, and they also behave a little differently. That’s kind of scary to the American way of thinking.”

Japanese investments attract more attention partly because of ethnic, cultural and language differences, and partly because Japan, as a greater economic power, has the potential to wield much greater influence over the U.S. economy, said Peter Kuhlmann of Translink International Group, a Swiss-based investment banking firm that owns the British American Deal Review. That clout tends to generate more public concern about the impact of foreign investment.

“You just don’t get that kind of backlash that you get when the Japanese buy,” Kuhlmann said about British companies. “You don’t get the perception that Britain is stealing our assets.”

Slackening Predicted

Some observers believe that all foreign investments, including British purchases, will slacken in the United States once the 12 countries of the European Economic Community strip away trade barriers in 1992 to create what some call the United States of Europe--the Western world’s biggest marketplace.

But those who specialize in British-American deals contend that British buying should not slow down just because the European market is more consolidated.

“I expect the level to increase,” said David V. Gardner, an international business lawyer who is a director of the British American Chamber of Commerce in Santa Monica. “But it won’t be just British companies alone coming here. It will also be U.K. companies that would use European allies in joint ventures to buy U.S. firms.”

The British aggressiveness in venturing into the United States during the 1980s has been a pleasant surprise for lawyer Gardner, who attributed it to Thatcher’s Conservative Party policies.

“I left England 10 years ago because there didn’t appear to be a future in the U.K.,” he said. “But there has been a revival of entrepreneurialism, and the attitude of business and the attitude of government toward business has turned around.”

Key Advantages for British

Dixon and his British American Deal Review have come up with a comprehensive rationale for the boom in British buying here. That rationale includes the common language, culture and historical roots, as well as the capitalist spirit revived by Thatcher. But it also identifies other advantages the British have over most other foreign firms:

-With more than 200 years of investing here, the British have accumulated a substantial stake in the U.S. corporate world and tend to choose more acquisitions nearer in kind and location to former purchases.

-Many British firms have also saturated the market in England and Europe and need to look elsewhere if they are to grow and prosper, with America the most attractive market, he said. When one company comes over its competitors soon follow, because the British have learned that growth in America can hurt competitors who remain at home.

-The Deal Review’s “relative pricing index”--an amalgamation of such factors as the value of the U.K. stock market, compared to that of the U.S. stock market--has shown that U.S. corporate assets are cheap because their stock markets have put higher values on their companies than Wall Street has put on U.S. firms.

The British also seem to enjoy considerable U.S. good will. Nationality is an issue that can work against any outsider except the British, it seems.

Swedish Firm Opposed

In Lawrenceburg, Tenn., for instance, local citizens rallied last spring to block a hostile takeover of Murray Ohio Manufacturing Co. by a Swedish firm, AB Electrolux. Local residents, including employees at the company’s factory for lawn mowers and bicycles, protested that takeover with an elaborate campaign to say nej-- Swedish for no--to the deal.

The protest included a rally of 4,000 residents, a petition with 5,000 signatures delivered to the Swedish ambassador and an array of posters, buttons and T-shirts emblazoned with the word nej.

Executives at Murray Ohio, which is based in Nashville, eventually found a white knight offering $4 a share more to rescue it from the Swedes.

The white knight was Tomkins PLC, a British conglomerate. The residents barely uttered a word of protest.

“It wasn’t so much the money that changed the minds of executives,” said Dixon, who condemned both the “xenophobic” activity and Murray Ohio’s role in condoning it. “They felt comfortable because Tomkins was going to keep them in their jobs.

“My belief is that managers themselves are drawing on these fears, with the sole aim not of protecting their industry from foreign raiders but of protecting their own jobs.”

Defusing Nationality Issue

Language and common customs can defuse the issue of nationality in the case of the British and have given them easy access to the U.S. market. Even the once-hostile approach BAT Industries was using to take over Farmers evaporated after the chairmen of the two firms finally met and talked together for a few days.

“The similarity in language and customs has made it much easier to operate,” said William T. Lightcap, an American who is executive vice president of ARC America, a Newport Beach sand-and-gravel company bought in 1977 by Consolidated Gold Fields PLC. “It enabled us to get along very well.”

Other county executives who have recently teamed up with British firms said nationality is irrelevant in forging the deals.

“The fact that the buyer was British was almost incidental to the deal,” said Robert Bonney, chairman of EECO, which last month sold a division to a British firm.

Those who bring the suitors to America, however, tend to disagree.

The French, the Swiss, the Japanese and the West Germans have an especially difficult time in putting U.S. targets at ease, partly because of language and cultural differences, said Kuhlmann of Translink International.

Specialty Drug Industry

“A businessman in the specialty drug chemical industry in Atlanta came from a simple background and has built an extremely successful private firm,” Kuhlmann said.

“For 6 months, he was talking with the French (about a sale of his company), and they couldn’t get through to each other. There was not a good sense of harmony and well-being, no sense of camaraderie or compromise.”

When a British investor was brought in recently, “the same person in talking with the British investor had an immediate sense of rapport,” he said.

The two are now further along in talks than the French ever got, he said.

From the end of World War II until the late 1970s, Americans bought British corporate assets at about twice the rate that the British were buying U.S. assets, according to the British American Deal Review.

For the last decade, the British have been outspending Americans, yet both remain the biggest investors in each other’s countries, Dixon said.

While the British buying binge has kept them at the top of the list as the biggest investors in U.S. securities, they still own less than 2% of total U.S. corporate assets, said Mark Dixon, editor of the British American Deal Review, which tracks foreign investments here.

6% of U.S. Assets Controlled

Despite growing uneasiness here about foreign investments and the threat of protectionist legislation, only about 6% of U.S. corporate assets are controlled by foreign entities, he said.

President Bush welcomes foreign investments. He warned Americans last week not to get “so concerned about foreign ownership” that they discourage other investors from other countries, particularly the Japanese, from buying U.S. securities. Such discouragement would “undermine” U.S. efforts to reduce the budget deficit, in part through foreign capital.

Regardless of what country buys more U.S. corporate assets, many economists, business executives, international investment bankers and experts in mergers and acquisitions encourage the international buying and selling of corporate assets. And they downplay the “invasion” of foreign investments in the United States.

“The number of (U.S.) companies acquired by foreign investors has been on the rise, but it is an inroad rather than an invasion,” Eric S. Rosengren, an economist with the Federal Reserve Bank of Boston, wrote in the latest edition of the New England Economic Review.

“Almost every single year, our effect on the British economy is greater than their effect on our economy,” he said. “Look at their total investment last year: $32 billion. The RJR Nabisco deal alone was nearly $25 billion. If you went into Canada or the United Kingdom with that amount of money, you’d have a tremendous impact on that country’s economy.”

Still, the increasing presence of British firms--as well as West German, Japanese, Canadian, French and Swiss--indicates how interwoven the world economy is and how growing foreign companies need to expand beyond their borders to help maintain a healthy economy worldwide.

“America is part of one huge world and involved in sharing in corporate assets,” Dixon said. “What we’ve seen in the last few years is just the tip of an enormous iceberg in which all Western nations will own significant pieces of other nations’ manufacturing and corporate assets. And these ownerships will be determined not by nationality but by practicality.”

Sometime in the next century, he predicted, U.S. firms will be half-owned by foreign investors, and Americans “won’t even think of the companies as foreign owned.”

The same will be true in other countries, he said.

Leonard N. Mackenzie, vice chairman and chief executive of General Automation, an Anaheim computer company that recently teamed up with Sanderson Electronic PLC of Britain, said: “The fact of life is that we are in a global market.”

THE BRITISH ARE COMING Largest British Acquisitions in the U.S. During 1988

British Buyer U.S. Acquisition Purchase Price (in millions) Grand Metropolitan Pillsbury $5,750 BAT Industries Farmers Group 5,200 Maxwell Communication Macmillan 2,640 Tate & Lyle Staley Continental 2,000 BNS (owned by Beazer Koppers Co. 1,709 and other investors) Carlton Communication Technicolor 780 Maxwell Communication Official Airline Guides 750 Marks & Spencer Brooks Brothers 750 Fisons Pharmaceutical unit of Pennwalt 441 The Royal Bank of Citizens Financial Group 440 Scotland

Source: The British-American Deal Review

Some Recent British Acquisitions in Orange County

General Automation Corp., Anaheim, this year received $4.1 million in financing from Sanderson PLC that can be converted into a 51% stake in General Automation.

EECO Inc.’s video text division, acquired this year by Paltex Editing & Production Systems Ltd. for $375,000 cash and a long-term note for an undisclosed amount.

A 50% stake in Campbell Automotive Group, Irvine, acquired in 1988 by Lex Service PLC for $13.5 million.

General Automation’s Parallel Computers division, acquired in 1988 by Integrated Micro Products Ltd. for an undisclosed amount.

Mendoza Dillon & Asociados Inc., Newport Beach, acquired in 1987 by WPP Group PLC for $25.5 million.

Collins Foodservice Inc., Orange, acquired by Bunzl PLC in 1987 for $40 million.

Source: Los Angeles Times

Value of Foreign Acquisitions of U.S. Corporations by Country In billions of dollars Great Britain 1988: $32.5 1987: $31.0 Japan 1988: $12.0 1987: $6.2 Canada 1988: $8.2 1987: $2.4 West Germany 1988: $3.1 1987: $4.1 France 1988: $1.8 1987: $2.1 Switzerland 1988: $1.4 1987: $1.2 Cumulative Value of all Foreign Acquisitions of U.S. Corporations by Country through 1988. In billions of dollars Great Britain: $107 Netherlands: $49 Japan: $46 Canada: $26 West Germany: $22 Switzerland: $16 France: $12 Source: The British-American Deal Review