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Leaving it Just to the Shareholders and Boards May Not Be Enough

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The bid by Pfizer for AstraZeneca has raised many, many questions.

Most of us believe in free trade and open markets. We also celebrate the extraordinary success of the UK over decades in attracting foreign direct investment and research and development. The largest global companies see the UK as a centre of excellence and a gateway to Europe. We must not be protectionist and we must increasingly ensure that we assist in the creation of clusters of industrial activity across the UK - not just in London or the south.

There are many things I learnt from being the minister for trade investment and small business in the last government, not least that politicians and business people need a better understanding of each others' challenges. I also learnt that we need clearer and better long-term planning on infrastructure, university-business partnerships, energy, industrial policy and the nation's competitive positioning.

We as a society have learnt so many lessons from the global financial crisis. We just left it to the market, which was a mistake. The reality is that shareholders, as owners of the Banks, never blew the whistle. Indeed, many like me, believe they drove CEOs of Banks to grow faster and faster and increase EPS as fast as they could.

We have also learnt from the crisis that shareholders, as hedge fund participation has increased, are too short term and are too focused on quarterly performance and benchmarking. The Cabinet is in many ways the board of directors for the country - UK plc. So they must ensure we are not too short term, that we are competitive and yet that we are not so open that our competitors steal our business.

So what has this to do with x border bids? The facts are that many US corporates have built up very significant cash resources outside the US and do not want to repatriate for tax reasons, which on the face of it seems outrageous. We do not have an international level playing field. I am not an expert on the pharmaceutical industry but I do wonder whether this deal is more about financial engineering rather than industrial logic. Is there a danger that Pfizer makes lots of chocolate promises? Kraft made promises which they did not fulfil, were rebuked, but so what. Leading government officials are talking to Pfizer. My question would be: shouldn't their first port of call have been to speak to AstraZeneca, not an international hostile bidder? I also wonder what we have learnt from the Kraft Cadbury Schweppes deal.

Promises often not kept by CEOs is not enough. The undertakings made by large corporations have to be legally watertight. It seems to be somewhat contentious to say that one really has to question whether this type of bid should be allowed, when such critical UK research and scientific capability is at risk. The UK has a very diverse economy and whether it is the creative industry, insurance, professional services, aerospace, automotives, biotechnology, education, consumer products, etc. etc., we have leaders and global positioning.

We are a creative nation with huge ability to create but often companies get sold too quickly because of a lack of depth in the venture capital market. We must correct that. We must also ensure that we do not lose our top corporates and our industries, and that we develop and maintain our leading position on research, which is so important to the future of our country.

We do not want government to overly intrude in business, as the burden is already too high. Nevertheless, we need to reflect on whether certain industries, certain research capability, certain companies, certain clusters are of such national importance that the country should have a view. Maybe the answer would be a small board of politicians and business people, who in cases like AstraZeneca would give their views. Maybe not but either way we must protect ourselves and yet be open. That is the nature of the dilemma. Leaving it just to the shareholders and boards may not be enough.

Lord Mervyn Davies of Abersoch was minister of state for trade, investment and small business from 2009 to 2010. Before that he was chief executive then chairman of Standard Chartered Bank.

Around the Web

AstraZeneca rejects Pfizer's raised bid of $106 billion | Reuters

AstraZeneca Rejects a Higher Bid From Pfizer - NYTimes.com ...

Pfizer ups its mega takeover bid for AstraZeneca - May. 2, 2014

AstraZeneca nixes Pfizer's sweetened $106B bid - USA Today

AstraZeneca Pfizer: Neil Woodford supports bid rejection - Telegraph

AstraZeneca Rejects a Higher Bid From Pfizer

Pfizer Looks for a Quick Strike on AstraZeneca

AstraZeneca Snubs Pfizer Approach That U.K. Won't Block

AstraZeneca Rejects Pfizer Bid

AstraZeneca spurns sweetened Pfizer takeover bid