Fate of Arm shows folly of UK’S takeover approach

Britain must be open to business – but that ought not to mean surrendering the crown jewels of our industry and technology

Six years after Theresa May rushed out the red carpet for Japanese investor Softbank to snap up British chip-making star Arm, the £23bn deal continues to bitterly disappoint. It is a reminder of the strategic muddle that the Government remains firmly stuck in: on the one hand, desperate for the country to be a beacon for foreign investment; but on the other, keen to turn Britain into a European technology powerhouse.

Selling off our brightest technology companies to the highest bidders may send a signal that the UK is firmly open for business – but is it really the sort of foreign investment that is in the national interest? In the last few weeks a slew of the country’s finest tech prospects have succumbed to takeover bids from abroad.

A Canadian rival is set to walk off with £5bn IT business Micro Focus; cyber security stars Avast and Darktrace have both received Us-led bids; France’s Schneider has swooped on £13bn industrial software developer Aveva; and GB Group, a Chester-based outfit that specialises in fraud prevention, is the subject of an American private equity bid.

In the blink of an eye, some of the most promising firms in high-growth sectors such as engineering, software, and cyber-security will vanish into overseas hands. If the Government is serious about building long-term growth then this naive, help-yourself attitude to takeovers must stop.

The fate of Arm exposes the folly of adopting such an unquestioning approach. Shaken by the shock Brexit referendum result, Theresa May and her then-chancellor Philip Hammond were desperate to demonstrate to the world that Britain remained open for business.

In their rush to unveil a big headline-grabbing deal, the pair allowed themselves to be persuaded that Softbank figurehead Masayoshi Son could be a trusted steward of Britain’s most promising home-grown tech company.

One of the pledges that Son made that convinced Hammond to throw his weight behind the deal without a national interest or security test was to double the number of engineers working at Arm. Now even that has been broken.

Though the number employed in the UK at one stage had jumped from nearly 1,800 to more than 3,500, a round of recent job cuts and departures across the group has reduced the figure to 2,800. What’s more, job losses have fallen disproportionately on its British operations.

It is one of many instances where Softbank’s promise to be a committed long-term owner hasn’t stood up to scrutiny. One of Son’s first acts was to sell a slice of Arm’s Chinese operations to investors whom it later emerged had connections to the Communist Party. It was a move that undermined Arm’s status in one of its most important markets as Beijing sought to install regime-friendly directors on the board.

Son also offloaded a 25pc stake in Arm, worth around $8bn, into the Vision technology investment fund it formed with Saudi Arabia.

Then with the Vision Fund clocking up astronomical losses, Softbank sought to quickly flog the entire company to American rival Nvidia, a deal that Arm’s co-founder Hermann Hauser warned would be “a disaster”.

The deal was blocked by competition regulators and Son now wants to float Arm in New York instead despite a last-ditch attempt by Liz Truss and Kwasi Kwarteng to persuade him to choose London instead. If their pleas are ignored it will be a final snub.

Genuine foreign investment is vital but it should not be confused with selling off the crown jewels of British industry and technology. There are plenty of examples of the former: Nissan pledging to build a giant battery factory in Sunderland; Google building its glitzy new European headquarters in Kings Cross; and Lidl’s announcement yesterday that it is looking to hire 1,000 new workers.

But to conflate these sorts of concrete pledges with Pfizer’s attempts to swallow a critical UK corporate giant like Astrazeneca, or a private equity consortium’s debt-fuelled purchase of supermarket chain Morrisons is ridiculous. It is like comparing apples and pears. The former creates jobs, is good for skills, and helps with levelling up. The latter, with its surrender of command and control, often results in job losses, a reduction in R&D, the disappearance of intellectual property, and less investment.

If the Government is serious about pursuing an unashamedly pro-growth agenda, Liz Truss must learn to differentiate between the two.

‘If Liz Truss is serious about growth then help-yourself takeovers must stop’

How to put levelling up back on track

Of all the Government’s flagship policies, levelling up has perhaps been the biggest failure. Regional inequality has actually gone up, not down with the divide between London and the rest of the country getting bigger, which is why Liz Truss’s commitment to pushing ahead with Northern Powerhouse Rail has been warmly welcomed in the North.

The dire state of train links between major cities such as Liverpool, Manchester, Leeds and Hull are the biggest impediment to growth in the region. A fast-speed Trans-pennine link has the potential to be one of the most important infrastructure projects of modern times by transforming the prosperity of the North.

The PM should prioritise it over every other major scheme in the works including HS2 and a third Heathrow runway.

Its legacy would be far more enduring.