A couple of weeks back we commented on the failed Kraft-Heinz bid for Unilever. It has now emerged that one of the attractions for the bidder was that Unilever has a strong balance sheet with minimal debt. This would allow the acquirer to load the previously healthy balance sheet with debt as part of the way they would finance the acquisition.
So here is the perversity of contemporary finance and M&A activity. Maintaining a healthy, strong balance sheet makes you a target for acquisition. Better to load yourself up with debt. Run your company as financially imprudently as possible. Only then are you not a target for predatory acquirers. Unilever is reportedly now looking at how to load more debt onto its balance sheet.
All this highlights just how ridiculous is the UK market for M&A. It is the country with the lowest barriers to takeovers. It is no wonder that the industrial base has been totally gutted and that companies increasingly find it necessary to take on debt and risk.
The UK market is far too open to takeovers of any kind. It is time for this to be addressed. Maybe as part of the government’s much vaunted industrial strategy. But it likely won’t be addressed while extreme free market fundamentalists continue to hold sway within the Conservative Party. They continue to have influence even as their views get ever more ridiculous.
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