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May orders officials to examine Unilever bid

Theresa May has ordered her top officials to examine Kraft Heinz’s proposed takeover of Unilever to see if it raises concerns for the wider British economy and merits government intervention.

The $143bn takeover approach is a big test for Mrs May’s industrial policy: last year she criticised Kraft’s 2010 takeover of the British chocolate maker Cadbury — the US company reneged on a promise to retain factories and jobs in Britain — and vowed to introduce new restrictions on foreign takeovers.

“A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain,” she said last July, shortly before becoming prime minister.

This deal would not be happening without Brexit

Mrs May has been criticised for presiding over a “fire sale” of British companies following the sharp post-Brexit depreciation of sterling. But her legal powers to intervene in foreign takeovers are limited and Philip Hammond, chancellor, has led opposition to the introduction of a wider public interest test.

British ministers are only allowed by law to prevent foreign takeovers on grounds of national security, financial stability and media plurality. They can, however, use other policy levers such as state industrial assistance, research grants and infrastructure to try to win concessions from a foreign bidder in a takeover.

The prime minister’s team has held talks with both Unilever and Kraft Heinz — a company known for its aggressive cost-cutting — to see what the implications of its plans are for jobs, research and development, as well as for Unilever’s headquarters operations and listing in the UK.

Unilever has 7,500 staff in the UK, based at its London headquarters and three research facilities at Port Sunlight, Colworth and Leeds.

The government’s recently launched industrial strategy includes a promised new regime to cover foreign investments in “critical national infrastructure”, although that is expected to focus on sensitive sectors — specifically nuclear power.

Alongside the battle for Unilever, Mrs May faces another challenge to UK manufacturing with plans by French carmaker PSA to acquire General Motors’ European operation Opel, which includes Vauxhall of the UK. The prime minister is due to meet Carlos Tavares, PSA’s chief executive — and another renowned cost-cutter — next week as talks between the two businesses move towards a conclusion.

Greg Clark, the UK business secretary, travelled to Paris this week to offer PSA, owner of Peugeot and Citroen, comparable assurances to the ones given to the Japanese carmaker Nissan, in an effort to save the Vauxhall plants at Ellesmere Port and Luton from closure.

Mr Hammond has argued strongly that if Britain is serious about forging a future outside the EU as a global trading champion, it cannot intervene to prevent flows of foreign investment into the UK. “We can’t go down the Danone route,” Mr Hammond said at a cabinet meeting last October, referring to action taken by the French government a decade ago that appeared to be intended to prevent a takeover of the yoghurt maker Danone.

While Mrs May wants to put the brakes on the perceived excesses of global capitalism, a defence of Unilever — the world’s fourth-largest consumer goods company by sales, with revenues last year of €52.7bn — would seem an unlikely cause.

Further detailed work will be led by Alex Chisholm, permanent secretary at the Department of Business, Energy and Industrial Strategy, and a former chief executive of the Competition and Markets Authority.

He will seek assurances from Kraft Heinz on its headquarters, listing and employment strategy in the UK, although government officials say the takeover approach is at an early stage and it is far from clear that the deal will go ahead.

Nonetheless, the weakness of the pound since the EU referendum, as well as the prospect of new tariffs once Brexit has been completed, make the future of UK manufacturing politically sensitive, given the unpredictable effect on British jobs.

Last week Tim Farron, the Liberal Democrat party leader, said of the Unilever approach: “This deal would not be happening without Brexit. The government’s industrial strategy has been completely undermined by its determination to leave the single market.”

Former business secretary Vince Cable called the Heinz Kraft bid “really alarming”, adding that it presented the government with a dilemma. “Either they sit back and say Britain is open for business, which is a bit pathetic,” he said. “Or they try to fight it, which is what I would have done.”

Mr Cable said there were mechanisms that the government could use to prevent any deal against the national interest — noting that a potential purchase of Unilever was “even bigger than Pfizer-AstraZeneca in terms of scope, and we managed to see that one off”.

After Pfizer’s £69.4bn approach for AstraZeneca in 2014 the government sought assurances on future R&D work in the UK and the bid was eventually dropped. Mr Cable said at the time that new powers were needed to make sure promises were honoured.

Via FT