Why cheaper sterling is leaving UK firms feeling exposed

The pound has been on a roller-coaster over the past few weeks after a tumultuous period in Westminster.

The City has taken a keen interest in the fluctuating fortunes of the pound. Picture: PA

The pound has been on a roller-coaster over the past few weeks after a tumultuous period in Westminster. Some stability appears to have been achieved following the Rebel Alliance’s move to kick out no-deal, but who knows what could happen next.

Despite this reprieve, sterling is still around 18 per cent lower against the dollar compared with the $1.50 position it had before the EU referendum in 2016.

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Holidaymakers will have noticed that their Costa del Sol pint and their Provence Cabernet Sauvignon were a lot more expensive this summer, but sterling’s demise is having a far darker effect.

Overseas investors are snapping up listed British firms at an alarming rate.

At the end of June, Madame Tussauds’ owner Merlin Entertainments agreed to a £5.9bn takeover by Lego’s owners, a private equity giant and a Canadian pension fund.

Merlin, which owns The York Dungeon and Scarborough Sea Life Sanctuary, accepted the bid from Kirkbi, the investment vehicle of Lego’s Danish founding family, Blackstone and pension fund Canadian Pension Plan Investment Board. Merlin also owns the Legoland and Alton Towers attractions.

In mid August, we learned that pub chain Greene King is to be sold for £2.7bn to Superdrug owner Li Ka-shing.

The UK pub group and brewer agreed the deal to sell its entire business to the real estate group run by Hong Kong’s richest family.

Greene King is the UK’s biggest pub owner, with roughly 2,700 pubs, restaurants and hotels across the country.

Then we had the news that Entertainment One, which owns children’s cartoon franchise Peppa Pig, has been bought by US toymaker Hasbro for £3.3bn.

Peppa Pig, which follows the life of a pink cartoon pig and her family, is a British phenomenon that has been translated into over 40 languages and is broadcast in more than 180 territories.

A joint statement by Entertainment One and Hasbro said the show had “thrived for over a decade”.

The deal is expected to close in the fourth quarter of the year.

Russ Mould, investment director at AJ Bell, said the foreign takeovers “keep on coming”.

Analysts at Dealogic said that since the start of 2016, there have been over 3,000 British mergers and acquisitions, which is 50 per cent more than the previous three years.

We should expect more over the coming weeks, a fitting backdrop to the Brexit crisis.

Closer to home, analysts believe that overseas investors could be looking at a takeover bid for Bradford-based Morrisons as a result of the weak pound, driven by ongoing uncertainty around Brexit.

Respected industry magazine Retail Week said Morrisons is considered a prime candidate for a potential takeover bid from an overseas private equity firm, as its share price continues to waver and the weakness of the pound makes deals cheaper.

Analyst Clive Black at Shore Capital said he is not suggesting Morrisons has already received an approach, “but sure as eggs are eggs, there are a vast array of investors looking at stable UK businesses at the moment”.

Amid the ongoing Brexit crisis, no-one knows what will happen to the pound, but we should get ready to wave goodbye to some much-loved British brands.

It’s a strange way to take back control and sovereignty.