Irrational Protectionism

November 1, 2007

In the November issue of Mergers & Acquisitions Journal we covered the growing power of foreign acquirers. Domestically, we tend to view cross-border deals as outbound investments emanating from the U.S. and settling down in areas like China or India. But increasingly it’s the inbound cross-border deals that are making headlines. And if the dollar remains limp, transactions such as Acer’s acquisition of Gateway or Dubai World’s investment in MGM Mirage will almost certainly become more common.

We’ve been largely hospitable to foreign buyers so far, but that warmth will quickly dissipate as the number of inbound deals continues to rise. We’ve already seen a fair bit of irrational protectionism in the recent past, including the furor that erupted over the Dubai Ports World deal last year.

The fallout even sparked a new law, signed in late July, that broadened the scope of what can be considered “critical infrastructure,” a designation that leaves more inbound deals open to review. What scares me is that we haven’t learned from past lessons. Our government has a fairly long track record of intervention. Some of our older readers may remember when the sale of Fairchild to Fujitsu was blocked by the Reagan administration.

More recently, Haier’s proposed acquisition of Maytag two years ago, created similar concern on Capitol Hill. (Maytag was ultimately sold to U.S.-based Whirlpool.) And of course, a couple weeks ago, Congresswoman Ileana Ros–Lehtinen set in motion a plan to block the buyout of 3Com by Bain Capital and Huawei.

If the economy does tank, the cries against foreign buyers will only become more pronounced -- especially if the presidential election is at full steam and other countries, such as China or Canada, ratchet up their own isolationist tendencies. But the idea of America being “hollowed out” by foreign buyers was as absurd 20 years ago as it is today.

So while critics will say that U.S. jobs are threatened and that it puts certain industries at risk, I’d counter that it’s all cyclical. Mitsubishi acquired Rockefeller Center back in 1988, and sold the property after just two years at a loss. Matsushita’s investment in MCA had a similar result.

So while foreign deals may stoke fears, let’s keep in mind that new investment flowing in, within the context of a global economy, is a good thing— even if it is flowing in on the cheap.