MONOPOLIES DIVESTMENT (Hansard, 13 March 1962)

§ Sir James Pitman (Bath)

I beg to move, That leave be given to bring in a Bill to give to the Board of Trade power to require a limited liability company to divest itself of shares in any wholly or partly-owned subsidiary or associated company where the Monopolies Commission have ruled that the ownership of such shares is monopolistic in character and harmful to the public interest. The House, and particularly the country, little knows, I think, that the Board of Trade has no powers in respect of monopolies divestment. On 30th January, the President of the Board of Trade made a statement in the House, from which I quote: If the merger"— that was, the I.C.I.-Courtaulds merger— takes place, and if it operates in such a way that it appears to me to be acting against the public interest, then I would immediately make a reference to the Monopolies Commission … If, after considering the report of the Monopolies Commission, the Government were to decide that it was necessary for them to intervene, they would ask Parliament for any additional powers that were required."—[OFFICIAL REPORT, 30th January, 1962; Vol 652, c. 896.] There are two things implicit in this statement. First, and it is common ground between all of us in the House, that there can be a national interest in monopolies of this kind. There may well be a company interest, but the national interest must, and shall, override it. Secondly, there is implicit in this statement that the Minister has no power to ensure that the national interest shall override the company interest. The Bill which I seek leave to introduce would give my right hon. Friend powers now rather than in the future. That is very important, because it enables the Bill to be general instead of particular. I cannot imagine anything more invidious for a company than to be the XY Company Ltd., the particular cause of a special Bill linked specially to it.

If the House wishes there to be powers to stop mergers in the correct circumstances, then I think that now is the time to introduce such powers and not to wait until later. Under the Bill, there would be three hurdles. First, the suspect monopoly has to be referred to the Monopolies Commission and found to be a monopoly. Secondly, the Commission 1127 must find that the monopoly is harmful to the public interest. Thirdly, it is within the discretion of the President of the Board of Trade and is not mandatory on him to require a divestment.

The Bill deals with three types of situation. First, the 90 per cent. to 100 per cent. wholly-owned shareholding—because if you obtain 90 per cent. you are able to enforce acquirement of the balance—which is the sort of ownership leading to integration which I.C.I. originally announced it was going for. Secondly, the 51 per cent. shareholding ownership which gives not integration, but an absolute voting control over policy and management in a "subsidiary" company. Thirdly, there is the sort of figure of, say, 37 per cent. of an "associated" company which gives a similar controlling interest if, but only if, the shares held by the other 63 per cent. are scattered among a great number of small and dissociated shareholders. In the case of British Aluminium we saw that 49 per cent. did not give control because Tube Investments had a 51 per cent. holding. Therefore, there is a vital distinction as to whether the 37 per cent. is the big fish when all the other fishes are little fishes, or whether there is an even bigger fish knocking about somewhere.

I am sure that all Members agree that all of those three considerations could well be present in a monopoly which might be harmful to the public interest and would be bad. In the present circumstances it is clear that a 37 per cent. holding may well give effective control to the board of I.C.I. In other words, the Courtaulds' directors, who have got to get through their report and accounts each year, must continually look over their shoulder at the 37 per cent. solid holding which will be cast in one single cast vote, and may well be, in effect, the single controlling force.

The three conditions are imposed on the Minister; that such shareholdings must be held to be a monopoly, that such monopoly must be harmful and that discretion shall be exercised by the right hon. Gentleman in the last resort. These are very far from arbitrary powers which I seek to give to the Board of Trade. That is one side of the story, but what about the liberties and rights 1128 of the shareholders? What does divestment mean? There are two types of this. Either a taking over company could be required by the President of the Board of Trade to sell or place its shares in the open market, or it could be required to distribute them pro rata to all its existing equity shareholders.

In the first place, the ordinary shareholders do not suffer, in the sense that there will have been no great change. As shareholders they will revert to the status quo ante. There will have been an additional amount of issued capital but they will have an additional amount of cash which the company will have received in respect of that additional amount of capital created and issued. On the other hand, in the second case—the distribution of shares to the equity share or stockholders—there will be a greater change and may well be a loss, but I submit that it will be no hardship on them if they will have known in advance where they stand.

First, they will own direct what they would otherwise have owned indirectly. As owners of the ordinary stock of the taking-over company they own as property the shares of the taken-over company and it is only right that they should own those shares directly rather than indirectly. Secondly, and this is very important, they can then cast their votes directly rather than indirectly. The essence of the 37 per cent. control is that a block vote can be cast solid and if an undertaking is given to the Board of Trade that such votes will not be so exercised one will have made absolute nonsense of the Companies Act and the control of shareholders over their boards of directors. It is far better that votes should not be thus artificially sterilized, but should be used for the very purposes for which such votes have been created.

I submit that it is a good thing that we should ensure in such cases, by a divestment which distributes the shares, that the property is owned direct and that the votes are cast direct. There is another argument in favour of this; the directors and shareholders of all potentially taking-over or being taken-over companies need a greater degree of certainty in their present situation. They are approached, or they wish to approach, another company for a takeover bid and I think that they should 1129 know what powers the Minister is to have and that is why I want it known now. He should have definite powers, immediate powers, but they should be general and, above all, sufficient.