So, You Want To Buy a Strategic American Company …

Advice for foreign CEOs shopping for ports, oil companies, etc.

A shipping container in Newark

In the last month, politicians across the globe have found a convenient new villain: the foreign multinational corporation. In the United States, the furor rages over Dubai Ports World, a government-owned firm from the United Arab Emirates that has received provisional approval to operate ports in six U.S. cities.

This hysteria is not limited to the United States. In Europe, there has been a rash of nationalist responses to foreign takeovers. In January, Indian steel magnate Lakshmi Mittal announced a hostile takeover bid for the European conglomerate Arcelor, successfully managing to annoy four European governments at once. When European countries aren’t scared of Indian predators, they are busy trying to prevent hostile takeovers from one another. In the last 10 days alone, the Spanish government has threatened to block a German takeover of the power-and-gas utility Endesa SA, and France brokered a merger between its two largest energy utilities to keep Italy’s Enel from taking over one of those firms. Socialist leader Evo Morales surged to victory in Bolivia’s January presidential election after promising to renationalize that country’s foreign-owned oil and gas concerns. Last year, China’s National Offshore Oil Corporation had to withdraw its bid for Unocal in the face of congressional opposition.

Of course business xenophobia isn’t new. In the ‘80s, Americans fretted about Japanese takeovers of America’s prestige brands; in the ‘70s, Europeans worried about American conglomerates. And the less said about the Dutch or British East India Trading Companies, the better.

Political resistance to foreign takeovers is not all that shocking, even in the supposedly laissez-faire United States. Foreign corporations are the perfect political bogeyman. By definition, they are un-American. Critics are usually correct when they claim that these firms are only concerned with making money (our multinationals would never act like that!!), and if they are state-owned, well, then their purposes must be even more nefarious. The targets of many of these takeovers—infrastructure, utilities, steel—are perceived to have some strategic value, which makes ordinary citizens even more sensitive.

This problem won’t be going away anytime soon. The whopping U.S. trade deficit has to be financed by foreign capital, and one form those capital inflows will take is the acquisition of U.S. firms. If anything, the problem will worsen as more foreign multinationals emerge from the developing world.

So, what’s a foreign CEO to do? How do you take over a national treasure in such a hostile political environment? Here are a few lessons that can be learned from recent experience:

1) Read a friggin’ newspaper. Every one of these takeovers has the inevitable “Officials at Foreign Conglomerate Ltd. were taken by surprise at the public hostility to what they viewed as a routine business transaction.” Dubai Ports World was no exception.

This surprise is very surprising. Any decent management consultant, public-relations representative, or even a novice blogger could have pointed out why the purchase of American port operations by an Arab firm might have raised a few political hackles. Always assume that a foreign merger will be framed in the worst possible way.

2) You don’t run a global company, because there’s no such thing as a global company. People who believe in globalization tend to assume that multinational corporations don’t really have a home country anymore. Indeed, when European resistance to Mittal Steel was evident, Indian Trade Minister Kamal Nath told reporters, “This is an era of globalization, cross-border investment and liberalization, not one in which investors are judged by the color of their skin.” There are Americans shot through the management structure of DPW, even though the company controlled no U.S. ports prior to its takeover of British firm P & O.

The problem is: This is not how voters think. Voters believe that firms are the extension of governments and thus ascribe to the companies all the policies and problems of their home country. When the foreign firms actually are state-owned (as with DPW), and the state has either difficult or ambiguous relations with the United States, then such realpolitik thinking might even be justified.

3) Tell your home-country government to be quiet. The only thing that a home-country government can do when there is a political dust-up over a corporate takeover is make things worse. For example, when there was congressional push-back on the proposed CNOOC takeover of Unocal, the Chinese Foreign Ministry responded by issuing a release calling on Congress to “correct its mistaken ways of politicizing economic and trade issues and stop interfering in the normal commercial exchanges between enterprises of the two countries.” This was a bit rich, even for those untroubled by the proposed takeover, given that CNOOC is state-owned.

Furthermore, any government statement merely reinforces the idea that the takeover is about politics and not a normal market transaction. Nath’s statements on the Arcelor takeover might have been well-intentioned, but they made Mittal seem like an official representative of India—even though Mittal Steel is headquartered in Rotterdam, Netherlands. Sometimes silence is the best form of diplomacy.

4) The media are not your friends. When a corporate takeover or investment has political implications, political journalists start taking over the coverage from the business press. This creates two dynamics that make the press much less friendly to the foreign firm. First, political journalists always prefer to talk about the clash of civilizations rather than the clash of business titans. Comity is boring: They want to see nationalism and conflict, because that’s much more interesting to write about. Second, because the political press lacks economics expertise, they’re more willing to entertain unlikely doomsday scenarios. For example, even though the CNOCC/Unocal deal would have had minimal effect on U.S. energy reserves or global energy prices, this type of concern was raised in story after story.

5) Remember that, sometimes, it’s not about you. As the Dubai Ports controversy unfolded, it became clear that the controversy had as much to do with the Bush administration’s disdain for keeping Congress in the loop as with substantive concern about homeland security. Ironically, DPW had been ahead of the curve in dealing with the administration—they informally approached Treasury back in October about the takeover. They simply didn’t anticipate that their routine approval would get embroiled in an internal American fight about congressional authority.

DPW, to its credit, has reacted nimbly to the port controversy. It is telling that once DPW requested the 45-day review—exactly what Sen. Schumer et al., wanted—members of Congress started sounding much more conciliatory about the whole deal. Given how it polls, the deal still might get quashed, but at least DPW is moving in the right direction. Let’s see if other foreign CEOs follow.