Smash and grab: How can we save our iconic brands?

WHEN David Cumming and his team at Standard Life Investments began poring over the figures of the veteran British engineering giant Tomkins last week it didn't take them long to realise they were in danger of being short-changed.

Cumming didn't like the look of the prospective 325p a share offer for the company from a Canadian consortium and took the rare decision to issue a statement saying it would vote against the deal if it was recommended at that price.

Shareholders had already expressed concern that due diligence was well advanced and that the two parties had been talking for four months.

But the possibility of a Tomkins takeover has wider implications. The 75-year-old company once known fondly for "buns and guns" through its former ownership of Rank Hovis McDougall and the Dirty Harry gunmaker Smith & Wesson, is poised to become the latest in a growing line of blue chip British firms succumbing to foreign acquisition.

From Spanish takeovers of Abbey National, ScottishPower and airports company BAA to India's purchase of British Steel owner Corus and Land Rover, iconic British companies have been swept up in a series of overseas smash and grab raids resulting from a weak pound and the absence of any legislative shield that protects other nations' key firms.

The argument over the drift of British companies into foreign hands has been around for some years but has picked up pace in the past week or two. Aside from Tomkins, the battery firm Chloride has been snapped up by US firm Emerson Electric and it looks as if International Power will succumb to the French. Scottish oil and gas company Dana Petroleum is in the sights of the Koreans.

But it was the acquisition of Cadbury by US firm Kraft that really caught the public's imagination and prompted ministers on both sides of the political divide to promise action to stop what was perceived as a damaging rot.

Fired by concern over the "loss" of a popular British icon the former business secretary Lord Mandelson offered to introduce a so-called "Cadbury Law" to ensure that takeovers faced tougher scrutiny. His successor Vince Cable is now promising action of his own to overhaul the City takeover regime. The Takeover Panel that polices the takeover code will also produce a set of recommendations.

The changes could mean extending the time allowed for takeovers to proceed and there is likely to be a new set of safeguards against short-term dealers trying to make a quick profit and effectively forcing companies into the hands of predators.

This argument has been aired by others, notably Lord Myners, the former City minister, who in an interview with the BBC last summer, suggested that those who invest only for the short term be denied voting rights.

But while these rules may keep the hedge funds and other short sellers at bay and extend the timetable, they won't necessarily stem the shift of control from these shores. On this issue, Cable appears adamant that there should be no change in the system that prevents British firms being taken over. Protectionism is not on the agenda.

So the pattern will be repeated and some see dangers in what appears to be a one-way process. The French are instinctively more protectionist and hold stakes in key industries, particularly utilities. Spain benefits from a provision allowing its companies tax relief on goodwill, which enables them to pay a higher premium in takeover bids.

What is encouraging overseas interest in UK companies just now is the weakness of sterling that has made Britain particularly attractive for North American investors, especially with industrial groups trading at relatively low earnings ratios, suggesting plenty of upside.It has led analysts to speculate that other potential takeover targets among British engineers could include GKN, Morgan Crucible, Cookson and Bodycote. Scottish engineer Weir Group and the plant hire firm Aggreko could also attract bids with the latter recently seeing its shares soar on rumours of interest from the Swiss/Swedish firm ABB.

It was not always like this. In the 80s Britain was home to some of the world's strongest conglomerates and industrial brands. It was the unknown Venezuelan-born son of an oil executive who, after leaving the builders' supplier Hanson, decided to buy Tomkins for about 5 million. Greg Hutchings was that man and he embarked on an acquisitions spree that turned Tomkins into a 5 billion industrial powerhouse.

But the wheels came off British industry as competitive pressures from the Far East and central Europe reduced prices and lured manufacturers overseas. Conglomerates fell out of fashion and the big names that were left have been targeted by foreigners or broken up. From GEC and Trafalgar House to Lucas Industries and the confectioner Rowntree, firms that seemed to have been around forever were suddenly wiped from the map or subsumed into even larger multinationals based overseas.

The acquisition of Rowntree - maker of Aero, Kit Kat and Yorkie bars - in 1988 was one of the biggest and most significant of the decade. It succumbed in a two-way tussle between Suchard and Nestle who were eager to get hold of its famous brands. It was a key milestone in the change in ownership that was to continue for the next 20 years. Every sector was caught up in the takeover boom. Financial giants such as Mercury Asset Management (sold to the Americans) and Scottish Equitable (to the Dutch firm Aegon) joined the drift while two years ago Scottish & Newcastle breweries fell to Heineken and Carlsberg, the Dutch and Danish firms.

Private equity fuelled the M&A drive in the 1990s and early 2000s, leading to calls for it to be controlled. The big US firms led the charge. Kohlberg Kravis Roberts acquired Boots the chemist in Europe's largest leveraged buy-out in 2007 before the banking crisis made it difficult for private equity firms to raise debt. But now they are back. Last week Blackstone announced it had raised 8.8bn for its new buy-out fund, the biggest since the squeeze in the financial markets.

The new North American juggernaut in private equity is emerging further north. The Canadians, who largely escaped the financial crisis, are cash-rich and are snapping up bargains in Britain.

The bidder for Tomkins is a consortium made up of Canadian private equity firm Onex Corporation and the Canada Pension Plan Investment Board (CPP). Earlier this year, the UK National Lottery operator Camelot Group was bought for almost 400m by The Ontario Teachers' Plan (OTP). Ontario beat 20 interested parties to buy UK healthcare company Acorn Care for 150m. CPP and Ontario's rival - AIMCO - recently tried to buy the listed parent of UK buy-out firm Candover Partners, although talks collapsed over price.

CPP has been investing in propery assets through a partnership with FTSE 100 company Hammerson. The pair acquired Silverburn Shopping Centre in Glasgow from Lloyds Banking Group for 297m and are also closing in on a 175m deal for office building in Gresham Street, in the heart of the City of London.

Pension funds usually deal through private equity firms and hedge funds. But the Canadians have been setting up massive cash reserves to invest in companies directly. CPP has C$32bn (20bn) invested in private assets, which represents 25 per cent of its total fund assets. Of the sum invested, 16.7 per cent is in UK firms.

With the UK facing more of the same in the coming months, political pressure for change is bound to intensify. Vince Cable may have expressed opposition to protectionism, but it is clear that he sees a need to do something and the Tomkins deal may prove to be the trigger for change.

He told an interviewer last week that he believes current regulation to be "very permissive" and that he is frustrated to have inherited a weak regime. "I will move on this matter as soon as I can," he said.