Does it hurt the UK economy when the United States buy all our good companies?

SneakySpectator

So imagine you're hypothetically buying the FTSE350 as your monthly index fund because you believe in the future of the UK (for some weird reason), but let's assume that's the case.

Then we create a really good company that's growing well and expanding. At the moment the company is private so it's not included in your FTSE350 index fund, but the it goes public and gets added to the fund. 

Now the growth of that company is added to the index fund, helps push it higher. Then a US mega company comes along and buys it, which results in it being delisted from the index fund. Now all that companies profits gets funnelled into the US parent company, which is most likely listed on the S&P500, which pushes it higher. 

Obviously small individual companies by themselves have very little impact but hundreds of companies over decades will have a tremendous impact on the growth of our own index's.

An easy way to prove this is theoretically if AstraZeneca bought Eli Lilly, all their profit would go to AstraZeneca and that would make the stock rise, which in turn would push up the index.

To be honest I don't know why big US companies don't just buy up all our companies? Well not all of them but

Exxon could buy Shell
Eli Lilly could by AstraZeneca 
Walmart could buy Tesco, Morrisons, Sainsbury's, Asda, M&S and B&Q.
JP Morgan could buy HSBC, LLoyds and Natwest.
Lockheed Martin could buy BAE Systems. 
Verizon could buy BT

etc etc you get the point. 

I've lost count of how many good UK companies could scooped up by the US. You know Revolut and Wise are next on the list to go. Will probably be bought up by a US bank.

Then once the US has stripped us of all our valuable companies, they would have full control over our economy and probably end up making us a US state or something. 

masonic

The state doesn't own any of the companies trading publicly on the stock exchange, nor the privately owned ones. These are owned by shareholders, who ultimately have the benefit of profits and growth of these companies, and get to decide on any sale of the company to other investors. This is true of private and public companies. To the extent that they employ people and sell goods and services within the UK, some tax revenue will be raised from their activities. More if they do not funnel their profits through tax havens. The companies you mention are already owned by a broad mix of international institutional investors. It is unlikely that different international investors would buy up the share capital in order to have these companies exit the UK market. The outgoing investors would also have to agree to any sale and it would need to be at a price they'd be satisfied with. If the companies were taken private, then that is potentially bad news other investors who wanted to own shares in the companies, but it would be challenging to take such companies as you mention into private ownership. Perhaps you are thinking more along the lines of the UK nationalising them?

Index funds are of greatest significance to those holding funds that track those indexes. An index may track one or more stock exchanges, or subsets of them. Those stock exchanges are run by companies owned by shareholders. So you could include LSE being scooped up by Intercontinental Exchange Inc. If would-be index investors do not like the composition of a country's relevant stock index, they are free to buy a fund that actively manages its holdings or to invest elsewhere. An ideal option is to buy a global index fund to get the benefit of all of the investable share capital regardless of the region in which the underlying companies have decided is best for their listing(s). But there are also a wide range of UK Investment Trusts that provide very good value and selected exposure to the UK market (and international markets). If you've been following the Saba takeover story, you'll see that shareholders can reject the advances of foreign companies trying to scoop them up.

wmb194

Walmart used to own Asda but sold it. Walgreens merged with Boots but talk is that it might be demerged and listed in London. 

Tucosalamanca

Do you think this is any different to how it's ever been?

I first became interested in the markets during the eighties.
Very few companies haven't changed significantly or disappeared altogether since then.

Do you realise that Astra Zeneca is a relatively new company (formerly part of ICI)? 
Nat West, BT, Morrisons etc, all have seen massive changes, some several times over. Owners change all the time.
This is literally how it works...

Section62

SneakySpectator said:

I've lost count of how many good UK companies could scooped up by the US.

'Good' is subjective.  The market gets to decide.

SneakySpectator said:

Then once the US has stripped us of all our valuable companies, they would have full control over our economy and probably end up making us a US state or something.

I think so long as the US agrees to buy an 'Autonomy' once in a while we shouldn't get too up tight about them buying other companies they like the look of.

The bit we need to worry about is ensuring the rules and regulations are in place and enforced to protect the public and the country's wider interests.

SneakySpectator

masonic said:

The outgoing investors would also have to agree to any sale and it would need to be at a price they'd be satisfied with.

Whenever have the shareholders not accepted a buyout offer? US companies just offer like 30%+ over share value and the they start drooling and foaming at the mouth and accept the offer.

All of our companies are owned by management funds like Vanguard, Blackrock etc so you as an individual investor have zero say. Vanguard control your shares, Vanguard always votes yes, because why wouldn't they? 

Anyway it's not just the delisting of companies from the UK indexes, it's that often times the work force slowly gets funnelled into the US. 

Look at DeepMind, an amazing AI company we created that was bought by Google. Yes it's technically headquarter in the UK but looking at the careers page they have 53 jobs currently available, only 9 of which are based in the UK... The other 44 are in the US.

By selling our companies the other countries we gain literally nothing but lose pretty much everything, except a HQ building that probably only has a handful of staff in it anyway.

DullGreyGuy

SneakySpectator said:
To be honest I don't know why big US companies don't just buy up all our companies? Well not all of them but

Exxon could buy Shell
Eli Lilly could by AstraZeneca 
Walmart could buy Tesco, Morrisons, Sainsbury's, Asda, M&S and B&Q.
JP Morgan could buy HSBC, LLoyds and Natwest.
Lockheed Martin could buy BAE Systems. 
Verizon could buy BT

When they buy them they are going to have to pay a premium for them else the shareholders will simply not agree to the sale. Once you bought it you have a big cost in integrating it to at least some level. To technically pay more than something is worth and then costs of integration you have to have a good idea as to how to increase its value (or believe its significantly under valued) or have another strategic reason for the purchase. Just saving a bit on deduplicating central functions isnt going to be enough of a saving to make it worth while.

Secondly its not a free for all, Walmart buying the top 4 UK supermarkets would be referred to the Competition and Markets Authority who almost certainly would not allow all of them to be owned by the same firm.

You also seem to be forgetting that Walmart did buy Asda for £6.7bn in 1999 and then sold it for £6.8bn in 2020 after the proposed sale to Sainsbury's for £7.3bn was blocked by the CMA. If you inflation adjust it they paid £10.1bn and sold it for £6.8bn 20 years later. 

wmb194

DullGreyGuy said:

SneakySpectator said:
To be honest I don't know why big US companies don't just buy up all our companies? Well not all of them but

Exxon could buy Shell
Eli Lilly could by AstraZeneca 
Walmart could buy Tesco, Morrisons, Sainsbury's, Asda, M&S and B&Q.
JP Morgan could buy HSBC, LLoyds and Natwest.
Lockheed Martin could buy BAE Systems. 
Verizon could buy BT

When they buy them they are going to have to pay a premium for them else the shareholders will simply not agree to the sale. Once you bought it you have a big cost in integrating it to at least some level. To technically pay more than something is worth and then costs of integration you have to have a good idea as to how to increase its value (or believe its significantly under valued) or have another strategic reason for the purchase. Just saving a bit on deduplicating central functions isnt going to be enough of a saving to make it worth while.

Secondly its not a free for all, Walmart buying the top 4 UK supermarkets would be referred to the Competition and Markets Authority who almost certainly would not allow all of them to be owned by the same firm.

You also seem to be forgetting that Walmart did buy Asda for £6.7bn in 1999 and then sold it for £6.8bn in 2020 after the proposed sale to Sainsbury's for £7.3bn was blocked by the CMA. If you inflation adjust it they paid £10.1bn and sold it for £6.8bn 20 years later. 

I worked for a US company that bought a dud of company* in Britain for £1bn, invested hundreds of millions if not more improving its physical assets and then sold it for pocket change a few years later to a British company... It doesn't always go well. When you've invested in physical assets bolted to the ground you can't easily pop them into an overhead locker and fly them home.

*Those (British) shareholders couldn't believe their luck. Bullish, more money than sense Americans are sometimes what you need.

Tucosalamanca

Warren Buffet / Berkshire Hathaway buying a stake in Tesco, eventually selling for a reported half billion dollar loss.

Vodafone selling Verizon stake, Diageo buying/selling brands all the time.

It's not a one-way street, far from it....

masonic

SneakySpectator said:

masonic said:

The outgoing investors would also have to agree to any sale and it would need to be at a price they'd be satisfied with.

Whenever have the shareholders not accepted a buyout offer? US companies just offer like 30%+ over share value and the they start drooling and foaming at the mouth and accept the offer.
All of our companies are owned by management funds like Vanguard, Blackrock etc so you as an individual investor have zero say. Vanguard control your shares, Vanguard always votes yes, because why wouldn't they?
Anyway it's not just the delisting of companies from the UK indexes, it's that often times the work force slowly gets funnelled into the US.
Look at DeepMind, an amazing AI company we created that was bought by Google. Yes it's technically headquarter in the UK but looking at the careers page they have 53 jobs currently available, only 9 of which are based in the UK... The other 44 are in the US.
By selling our companies the other countries we gain literally nothing but lose pretty much everything, except a HQ building that probably only has a handful of staff in it anyway.

Shareholders frequently reject buyout offers. Ultimately they should be free to choose whether or not to sell their shares. They've risked their capital in support of getting the company where it is at the time of the offer, and if they decide it is better for them to sell their stake then they should be able to do so. When a government starts forcing the hands of shareholder in some misguided view of the national interest, then that would have dire consequences for investment into the UK. Likewise if the population are forced to invest their money into UK companies against their will, or companies are banned from listing their shares on the open market where they are capable of being purchased by foreign agents.

SneakySpectator

masonic said:

SneakySpectator said:

masonic said:

The outgoing investors would also have to agree to any sale and it would need to be at a price they'd be satisfied with.

Whenever have the shareholders not accepted a buyout offer? US companies just offer like 30%+ over share value and the they start drooling and foaming at the mouth and accept the offer.
All of our companies are owned by management funds like Vanguard, Blackrock etc so you as an individual investor have zero say. Vanguard control your shares, Vanguard always votes yes, because why wouldn't they?
Anyway it's not just the delisting of companies from the UK indexes, it's that often times the work force slowly gets funnelled into the US.
Look at DeepMind, an amazing AI company we created that was bought by Google. Yes it's technically headquarter in the UK but looking at the careers page they have 53 jobs currently available, only 9 of which are based in the UK... The other 44 are in the US.
By selling our companies the other countries we gain literally nothing but lose pretty much everything, except a HQ building that probably only has a handful of staff in it anyway.

Shareholders frequently reject buyout offers. Ultimately they should be free to choose whether or not to sell their shares. They've risked their capital in support of getting the company where it is at the time of the offer, and if they decide it is better for them to sell their stake then they should be able to do so. When a government starts forcing the hands of shareholder in some misguided view of the national interest, then that would have dire consequences for investment into the UK. Likewise if the population are forced to invest their money into UK companies against their will, or companies are banned from listing their shares on the open market where they are capable of being purchased by foreign agents.

Well it doesn't really affect my personal finances anyway because I invest in the VWRP fund which is 66% USA and only 3.4% UK so my exposure to this second world economy is minimal anyway. 

However I would still like to see the UK actually create a good company, list it publicly, and hold onto it.