HomeBusinessMoneyALEX BRUMMER: Kwarteng gets it wrong on Morrisons

ALEX BRUMMER: Kwarteng gets it wrong on Morrisons

Somewhere in the bowels of Whitehall, there must be a document entitled advice to ministers on overseas takeovers. 

It says that whenever government is challenged on the merit of foreign deals, the answer should always be the same: It is a vote of confidence in the desire of firms to invest in Britain.

It is fantastic when a trade investor such as Nissan decides to build a gigafactory in the North East.

Business Secretary Kwasi Kwarteng has given his backing to  a debt-fuelled, private equity bid  Britain’s fourth largest grocer Morrison despite grave concerns over jobs and food security 

But it is a very different proposition when private equity sharks, with muscle-rippling names such as Fortress and Apollo, directly launch an attack on the UK’s food security and consumers with a debt fuelled bid such as that for Morrisons.

That the Business Secretary, Kwasi Kwarteng, failed to make this distinction between real investment and financially driven transactions is quite frankly startling.

Words used by Kwarteng in his LBC interview have a tired familiarity. They were the same arguments mustered by then chancellor George Osborne when Pfizer launched its failed £86billion bid for Astrazeneca (AZ) in 2014. 

Were it not for a robust defence by AZ there might be no life-saving Oxford-AZ Covid vaccine. The pharma group has since been transformed into Britain’s most valuable company, worth more than £130billion.

Similarly, when Softbank chief Masayoshi Son bought Arm Holdings for £24billion in 2016, he was welcomed at Downing Street as a conquering hero and the deal seen as backing for post-Brexit Britain. 

Son’s ambition for the Cambridge-based smart chip maker was taken at face value. No one envisaged that its Chinese arm would be sold to Beijing and the core of the company put up for sale to rival chip maker Nvidia.

Morrisons chairman Andy Higginson has somehow convinced Kwarteng that the bidders Fortress, backed again by Softbank and the ultra-Right Koch Brothers, are good chaps and to be trusted with the UK’s fourth largest supermarket group, its farms, food production and fishing fleet. 

The Bradford headquarters may be preserved giving a veneer of permanence to the new owners.

But there can be no escaping that Fortress and friends aim to buy a grocery star on the cheap and engage in the kind of financial engineering which has seen great chunks of the High Street laid to ruin.

Under the ‘agreed’ deal, some £300million will be stripped out of Morrisons by financiers and advisers by way of fees, and the balance sheet loaded up with £5.75billion of ‘interim’ debt.

When Kwarteng arrived as Business Secretary, it looked like a new dawn. However, urgent reform of Britain’s audit system is postponed, the much vaunted UK Investment and National Security act designed to prevent technology loss watered down. 

Private equity thrives on cutting jobs not creating them. As a student of capitalism, Kwarteng should know that.

Rough justice

Britain has never been shy about shipping its alleged financial villains off to face justice in foreign lands. Rogue Barings trader Nick Leeson was sent to Singapore and the Natwest Three to the United States.

The options for Mike Lynch, founder of technology firm Autonomy, are running out fast. Judge Michael Snow in London ruled that his extradition to face 17 charges of conspiracy and fraud was not an abuse of process. 

The court decided to act without awaiting the outcome of a civil case. It will be up to the Home Secretary to order extradition.

Thanks to the sale of Autonomy to Hewlett Packard for £8billion in 2011, Lynch is not short of funds to appeal right up to the Supreme Court, and denies all charges.

The UK-US extradition treaty, signed in 2003, was said to be intended for terrorists. It is hard to believe that those who drafted and signed it didn’t recognise it could be turned against white-collar and other offenders. 

Lynch may prefer the gentler choice of a Serious Fraud Office prosecution in UK courts.

But it is not going to be his choice.

Price taker

Another escapee from the attentions of private equity is Ben & Jerry’s-to-Dove champion Unilever.

It has underpinned its independence since chasing off Kraft-Heinz in 2017 by stepping up growth in the US, India and Japan and seeking to widen margins by moving online, cutting costs and upgrading its brands and bolstering ESG credentials. 

A warning that surging commodity prices will hit margins in the second half of the year sent the share price skidding by nearly 6pc.

Who said inflation is transitory?

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