Two-Way Traffic

While U.S. business is busily investing abroad, a French industrial giant last week launched an invasion of the U.S. Out to acquire a controlling 40% interest in New York's Howe Sound Co., France's Pechiney, the biggest aluminum producer in Europe, offered to buy up to 1,300,000 shares of Howe Sound common at $15 a share ($4 above the previous closing price). Pechiney is principally interested in Howe Sound's Quaker State Metals division, which can roll out 120 million Ibs. of aluminum sheet and strip a year, but is also eager to get control of Howe's copper and brass rolling mills, its precision casting facilities and its dental and surgical products division.

Pechiney's bid, if successful, will be one of the largest investments a foreign company has made in the U.S. in the past decade. Direct investments by foreign businessmen in U.S. companies have doubled since 1950, to more than $7.5 billion. Before World War II, two-thirds of foreign holdings in U.S. manufacturing companies were in textiles and chemicals, but today the biggest investments are in food, tobacco and beverages. The lion's share of the foreign investment in the U.S. is British. The British have increased their holdings from $1 billion to $2.5 billion since 1950, mainly by increased investment in such companies as Brown & Williamson Tobacco, Thomas J. Lipton, Lever Brothers, Bowater paper and Shell Oil. Canadians run second with a $2 billion U.S. investment, mostly in railroads, insurance, liquor and farm machinery.

Surprisingly, the increase in foreign capital invested in the U.S. has not helped the nation's balance of payments. Reason: the foreigners have financed half their expansion out of U.S. earnings, and have consistently taken home dividends greater than the amount of new capital that they exported to the U.S. Presumably, U.S. businessmen investing abroad will also in time bring home more money than they spend abroad. Yet the Administration frequently expresses concern over the tripling of U.S. investment abroad since 1950, and tends to regard capital investment overseas as just another naughty contribution to the U.S. gold outflow.

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