A healthy approach to mergers and acquisitions needs to reflect the same commitment to good management in both the long and short term. Nobody denies that a change of ownership can be a good thing for a company. There can be economies of scale or the possibility of technology synergies. It can create new value over time.
But the open secret of the past two decades is that through poor valuation or aggressive cost-cutting, too many mergers fail to create additional long-term value in the merged company. For this reason, companies making acquisitions should set out an objective analysis of the potential gains and be entirely open about their intentions for the workforce, while shareholders on both sides have to be genuinely critical.
Directors should expect to run the gauntlet of public and shareholder criticism if they have done their homework poorly, plan to load companies with heavy debt, are motivated chiefly by the desire to strip assets or simply want make a quick profit off the share price with little respect for the workforce or local interests.
Free-market true believers will no doubt say that any distinction between types of share ownership in publicly owned companies is irrelevant. Most people buy a stake in a business to make money, and they will take a short-term profit over long-term investment. It is not at all clear this must be the case.
It was Keynes who first likened share trading to the superficiality of trying to guess the outcome of a beauty pageant. Britain’s industrial future depends on it being something more than that. It is time to restart the debate.