Europe’s takeover bid for U.S.A.

Press, 27 March 1979, Page 21

Europe’s takeover bid for U.S.A.

est Germany’s industrial mission to New Zealand raised questions about their intentions here, and whose interests are best served by foreign investment. In this article NORRIS WILLATT of the “Observer” examines ...

Europeans are buying up assets in the United States at an unprecedented rate these days. The investment spree extends all the way from individuals buying houses to giant companies taking over large American businesses. The year 1978 seems to have marked a new high in this respect, and the trend has continued into 1979. There are several reasons for this rush to acquire dollar assets. One powerful incentive is the depreciation of the dollar; today assets in the United States can look comparatively cheap when valued in terms of strong European currencies, such as the German mark, Swiss franc and Dutch florin. And they are cheaper than for a long time for buyers paying in less robust currencies, such as the pound sterling, the Italian lira and the French franc. Companies are also attracted by the fact that

the United States offers by far the biggest market in the world. The market is highly receptive to foreign merchandise — and is still expanding — but countries like West Germany and Switzerland find their exports are being priced out by the rise of their currencies against the dollar. One solution to this problem is to carry out manufacture inside the United States; with the added advantage that wages in that country are now, in some cases, lower than in Europe. In addition, production on the spot cuts other costs, such as freight and insurance, and, possibly, customs duties.

The extent of the private acquisition of assets is not known for certain. However, the United States Department Of Commerce estimated for 1974 that foreign investors controlled total assets of

$174 billion, nearly half of which was in finance, insurance and property. Since then, holdings in property have grown substantially. In recent years, Europeans have been assiduously purchasing land, houses and flats in America. One sign of this is the regular appearance these days in leading newspapers of West Germany, for example, of advertisements by agencies offering to handle the purchase of United States real estate. Most of the property advertised is in such choice areas as Florida and California, but the market is not restricted to these states alone. One reason for West Germans especially engaging in such transactions is said to be to have some insurance in case “the Russians come”; that is, in case at some time in the future the Soviet Union should bid to invade Western Europe. This preference on the

part of individuals for United States real estate is no doubt influenced by disillusionment with the American stock market as an investment vehicle. Traditionally, Wall Street has been the favoured outlet for individual investment by foreigners. But with the market well down from its ail time high of a little over 1000 on the Dow Jones Index, and drifting aimlessly for months at a time, foreign* ers have lost faith in American shares. Because the shares of many publicly owned United States companies

are cheap, it is possible to get a foothold in the United States economy at bargain rates.

Bargains or not, some European firms are splurging on the takeover of American enterprises. Some examples of really big deals arranged during 1978 were the acquisition by Unilever, the giant multinational, of National

Starch and Chemical, a producer of starch, resins and adhesives, for $485 million.

By the big West German stee! group, Thyssen, of the Budd Company, an important manufacturer of vehicle components, for $275 million. By Nestle, the Swiss conglomerate, of Algon Laboratories, a pharmaceutical manufacturer, for a like sum. Bayer, one of the big three of the West German chemical industry, took over another well-known United States pharmaceutical firm, Miles Laboratories, for $250 million. Two leading West German vehicle manufacturers, Daimier-Benz and M.A.N. selected the same American firm as a takeover target — White Motor.

The former bought 100 per cent of White’s Euclid heavy vehicle division; the latter acquired 12 per cent of White Motor itself,

with the aim of assembling its own trucks in the United States market for the first time.

European firms already established in the United States economy have spent quite heavily to fund new facilities or to expand existing ones. Thus, both Shell Oil and 1.C.1. committed themselves to constructing new ethylene plants. In the former case, the investment was $5OO million; in the latter, $6OO million (though the British chemical giant was sharing the cast with Solvay, the big Belgian chemical company, and the Union Pacific Corporation of the United States). This European investment invasion, significant in itself, becomes even more so as the sequel to events in the 19505, when many Europeans —President Charles de Gaulle of France being the chief exponent — professed to fear that the

Americans threatened a mass takeover of industry in Western Europe. That fear has now faded; United States investment in Europe in recent years has slowed down while European investment in the United States has speeded up. It is true that in earlier years the Americans built up a strong position in the Old Continent, and this has not been essentially weakened. The change is that Europe is now moving towards a greater equilibrium. It is estimated that the aggregate value of foreign direct investments in the United States at the end Of 1977 was already around $33 billion, compared with only about $7 billion in 1960; and it is said to be growing at the rate of well over 10 per cent per annum. The owners Of about three-quarters of all these assets are from Western Europe. — O.F.N.S. Copyright.