Why should any government care about its nation’s companies falling to foreign takeovers? Because jobs matter — especially the top job and where it’s based. The unease over a recent shakeup at Google DeepMind has brought the issue into stark relief.
Demis Hassabis sold his UK-based artificial intelligence firm DeepMind to Google’s US owner Alphabet Inc. in 2014 and continued to lead his brainchild from London. It’s remarkable that such an arrangement lasted so long. The renamed Google DeepMind appeared to be a semi-autonomous republic within the multinational, and in recent years it assumed control over Alphabet’s other AI operations. Externally, DeepMind was a US takeover. Internally, it became a British one.
A more conventional arrangement is now emerging. Hassabis is stepping down as the unit’s chief executive officer and will take on a role allowing him to dedicate time to what he cares about most: science, and what he calls the “big picture.” His divisional CEO role is being retired. The new leader, Koray Kavukcuoglu, is to be known as a “Senior Vice President,” a title he’ll hold alongside another Alphabet position. He was with DeepMind pre-Google. But today he is based in Mountain View, California.
The sense of loss in London around all this is real, with the episode sending “shockwaves” through the company’s Kings Cross office, according to the Financial Times. Any criticism of Alphabet would be unmerited. It paid £400 million ($540 million) for DeepMind. That bought it the right to run it as it pleases.
But the situation exemplifies some key policy concerns for Britain. The location of a company’s executive power matters: It’s where the big decisions are made. A firm’s other high-value internal jobs will often end up nearby. This cluster of talent then pulls in businesses working in the same industry. All good news for the surrounding community.
Hence it’s a sensitive issue in deal situations. When drugmaker Pfizer Inc. tried in vain to buy its UK rival AstraZeneca Plc in 2014, the US suitor’s bosses approached Downing Street offering commitments on protecting British interests. Japan’s Softbank Group Corp. made a novel pledge to raise headcount in Cambridge when it was buying chip designer Arm Holdings Plc in 2016. Unfortunately, such arrangements are usually time-limited or fudgeable.
What goes for foreign takeovers also goes for where public-company shares are traded. When a firm moves its primary listing to New York, that can pull the headquarters and the key people with it, since doing so may help achieve S&P 500 inclusion further down the line.
Of course, DeepMind also underscores the potential benefits of takeovers regardless of whether the buyer is foreign. The new owner may bring expertise and financial resources that help the acquired business grow and develop. In Alphabet’s case, those have been considerable. As an independent company, DeepMind may have struggled to sustain its research-driven culture for so long.
Still, the westward shift in oversight compounds the sense that Britain is good at creating value which ultimately is captured elsewhere. Alphabet was worth about $400 billion when it bought DeepMind. Its market capitalization has since added $4 trillion or so. It’s hard to say how much of that is attributable to Hassabis and pals. But if DeepMind represents only 1% of its parent’s current worth, it would be a top-quartile FTSE-100 company on its own. What a missed opportunity for London, both as a city and trading venue.
The way to stop top jobs drifting away is to build a home market where companies can secure capital from engaged investors, making the charms of a large overseas parent or share listing less attractive. The UK government needs to create incentives to spur both institutional and retail investment in domestic firms. It’s less of an immediate headline grabber than capping bus fares, as new Prime Minister Andy Burnham has done, but it would do more for growth.
Disclaimer: This report is auto generated from the Bloomberg news service. ThePrint holds no responsibility for its content.