§ The Secretary of State for Industry, Trade and Regional Development and President of the Board of Trade (Mr. Edward Heath)
With your permission, Mr. Speaker, and that of the House, I wish to make a statement on British Lion Films, Ltd.
Successive Governments have, for many years, attached importance to British film production, and the present Government adhere to that policy. They consider, however, that their support should be limited to the provision, through the National Film Finance Corporation, of a certain amount of risk-bearing finance and acting as a specialised film banker. They have never had any intention of participating in the actual production or distribution of films.
In 1955, however, the Government found themselves obliged to authorise the N.F.F.C. to acquire the British Lion undertaking in partial satisfaction of a debt owing to the Corporation.
Both at that time and subsequently, the Government declared their intention to find a suitable purchaser for the company once its fortunes had been sufficiently restored. This would enable a large amount of the public money which had been tied up in British Lion to be recovered.
I am circulating in the OFFICIAL REPORT a detailed narrative of the events which have led up to the present situation. The position is as follows: British Lion Films Ltd., independently valued at £1,590,000, excluding the benefit of a tax loss, is now wholly owned by the National Film Finance Corporation; and the five executive directors have been paid sums amounting to a total of £795,000 in settlement of their half share in the company which they acquired in 1958 for £9,000.
418 In conformity with its general policy, the N.F.F.C. recommended to me that this opportunity should be taken of returning British Lion to private ownership, and I authorised it to proceed accordingly.
On 20th September, 1963, Mr. Box had approached the N.F.F.C. on behalf of a group who had appreciated that the company might become available for purchase as a result of the option arrangements announced to the House by my predecessor on 8th March, 1963. At that time, Mr. Box appeared to be the only suitable purchaser and, on the 20th December the N.F.F.C. entered into negotiations with him.
In recent weeks, other approaches have been made to the N.F.F.C. I have, therefore, agreed with the Corporation that, subject to my final approval, it will negotiate the sale of the whole of the business at the valuation price to a purchaser able to give assurances satisfactory to the Corporation and the Government that the company will remain independent and that the facilities which it provides for independent production will continue to be available. The terms will provide that the benefit of the tax loss will not pass to the purchaser. In considering offers, the N.F.F.C. and the Government will attach the greatest weight to the ability of the purchasing group to provide the necessary financial strength and skill in management and to maintain its independence. I am examining with the N.F.F.C. the precise formulation of these assurances and the means of maintaining them.
If the business of the company is not to be seriously damaged, it is essential that the negotiations for sale should be brought to a conclusion within the next few weeks.
The sale of the company on this basis would enable British Lion to continue to support independent film production and to provide the "third force" in the industry which is generally held to be desirable; it would also enable the N.F.F.C. to revert wholly to its proper function as a source of loans for this purpose.
§ Mr. Jay
Is the right hon. Gentleman aware that his second or third thoughts are usually better than his first, and is he aware also that, in the opinion 419 not merely of many hon. Members but of widespread sections of the film industry, it is essential for the objectives which he has set out today that there should remain a substantial public ownership in British Lion? Is he prepared now to give an assurance that he will see that this is done, because, if not, he must expecta great deal of opposition both in the House and from the film industry?
§ Mr. Heath
There is no difference between our position now and the position when the National Film Finance Corporation first approached me. It has always been our determination that British Lion should remain independent and should continue the functions which it has been carrying on. That has always been our intention and the intention of the N.F.F.C.
Those who have been to see me have all emphasised the importance they attach to the continued independence of British Lion, with which I am in full agreement, and they have made a variety of suggestions as to the means by which this can be assured. As I have said, I am now examining those means with the National Film Finance Corporation.I should not like to go into them in detail at this time because of the negotiations which now have to be carried on between the Corporation and those who are interested in the purchase of the company.
§ Mr. J. Rodgers
Is my right hon. Friend aware that many of us on this side, at least, will welcome his decision to sell the taxpayer's interest which is at present invested in British Lion Films, for two reasons: first, because conditions have greatly changed since the original decision, and television has ousted the film as a major medium of mass communication; second, because this move will allow the N.F.F.C. to have more funds available to support independent British film production? We greatly welcome his decision.
§ Mrs. White
Is the right hon. Gentleman not aware that there is a very strong monopoly in the film industry? Is he not also aware, particularly following his statement yesterday, that it is incumbent on the Government to deal with this monopoly situation? If the Government do so, will they remember that the value 420 of British Lion might be very different in a short time? What business has the right hon. Gentleman to dispose of a publicly-owned firm in the present circumstances of the film industry, when he has made no decision about what is to be done with the rest of the industry, which could have a strong effect on the value of British Lion? Is he further aware that we are aware that he has had an offer from the former chairman of British Lion, on very favourable terms to the Government, to goin on a holding operation for a period of 12 to 18 months, which would ensure continuity of the business of British Lion and give time for the right hon. Gentleman and his Department to make up their minds about what they are going to do about the monopoly position in the rest of the industry?
§ Mr. Heath
While I am aware of the anxieties that have been expressed in the industry and by others about the position—which is usually described as duopoly in the industry—I am awaiting the recommendations of the Films Council, which I hope to receive very shortly, about this situation. Whatever the recommendations are on this matter, I am sure that they will be in agreement with the views of those who have been to see me and who have emphasised the need to maintain the independence of British Lion; and that is what we are determined to do in the way in which these negotiations are carried out.
I am, of course, aware of certain offers made by people other than Mr. Box. All of these will be considered by the N.F.F.C. and discussed with those who put them forward. I have authorised that to be done. But if these five directors had so wished, they could have exercised the second option to buy the whole of the company and run it themselves or agreed with the N.F.F.C. to allow the options to continue; and the present situation would remain as it is. They did not wish to do that. I am not criticising them. They wished to recover their capital holding in the firm, which they have done, and it is now our responsibility to find a satisfactory solution which will retain the independence of British Lion.
§ Captain Orr
In deciding upon the future purchaser of the company as between one and the other, will my right 421 hon. Friend give an undertaking that he will keep aneye on this himself, because there is some doubt as to whether or not the independent British film manufacturers have any confidence in the present management of the N.F.F.C.? Will he add to the criteria by which these choices will be guided the point that the purchaser, in addition to other things, should command the confidence of the independent British film producers?
§ Mr. Heath
I think that my hon. and gallant Friend will accept, from the discussions which I have had with him, his colleagues, hon. Members opposite, and many representatives of the film industry, that I am handling this matter personally and am keeping in the closest touch with it, though I would not accept the reflection my hon. Friend made on the N.F.F.C. The point he has made is implicit in the announcement which I have made about the qualifications required for the ownership of this company.
§ Mr. Lubbock
While I welcome the concern the right hon. Gentleman has expressed for the independence of British Lion, I agree that Government participation in the company through the N.F.F.C. is the strongest possible guarantee of its continuing. Will he give an assurance that none of the groups with which he is negotiating have among their members people who are associated with either Rank or A.B.C.? Will he tell the House what is the nature of the assurances which are to be required from a potential purchaser, and will they be incorporated in the sale agreement? In particular, would he confirm that the purchaser will be asked to give an undertaking that the studios owned by British Lion will not be sold off to any property speculators?
§ Mr. Heath
If the hon. Member will consider my statement, he will see that the last point he raised is covered. I said:…a purchaser able to give assurances satisfactory to the Corporation and the Government that the Company will remain indedependent and that the facilities which it provides for independent production will continue to be available".On the question of an undertaking that no one will have any connection with Rank or A.B.C., I could not give an 422 assurance of that kind. The N.F.F.C. must be entitled to discuss with anyone who applies what the situation is, and I could not tell it that it must refuse to interview anyone who approaches it on thismatter if that person has any particular connection. However, it will exercise its judgment when making recommendations to me on the lines which I have given here about the ability to maintain the independence of British Lion.
§ Mr. Speaker
We really must get on in the interests of other business, and I regret that I shall be having to detain the House far a moment to make a statement on accommodation.
§ The following is the narrative:
§ The National Film Finance Company Ltd., which was incorporated in October, 1948, and the National Film Finance Corporation, which was established by statute in March, 1949, made loans totalling £3 million between October, 1948 and April, 1950, to the British Lion Film Corporation Ltd., the company round which the independent film producers were grouped and which was in financial difficulties. This loan was made at the request of the Government very largely in order to pay the company's debts and to enable it to remain in business. This money was mostly lost and, with the Government's agreement, in June, 1954, the National Film Finance Corporation put a Receiver and Manager into the British Lion Film Corporation, which was subsequently wound up. A new company—British Lion Films Limited—began operations at the end of January, 1955.
§ The arrangements which the National Film Finance Corporation made for the setting up of British Lion Films Limited were set out in a statement laid before the House on 25th July, 1955. The National Film Finance Corporation acquired the entire issued capital of 600,000 ordinary £1 shares in British Lion Films Ltd. in satisfaction of the British Lion Film Corporation Ltd.'s debenture debt of £3 million and of the National Film Finance Corporation's subsequent advance to the company of £569,000.
§ Efforts were made by the N.F.F.C. during 1957 to find private investors who would buy the British Lion shares at a fair price and were willing and able to continue to finance and distribute independent British films. No satisfactory offers were forthcoming.
§ Under a reorganisation of the management of the company at the beginning of 1958 the Board was strengthened by the appointment of a number of successful independent film producers. Mr. DouglasCollins was appointed as Chairman and Mr. David Kingsley as Managing D rector.
§ The producers (Messrs. John Boulting, Roy Boulting, Sidney Gilliat and Frank Launder) and Mr. Kingsley were given an opportunity, 423 which they took, to acquire a holding in the equity of British Lion Films Ltd. The existing shares belonging to the National Film Finance Corporation were converted into 600,000 preferred shares of £1 each and these five gentlemen became the holders in aggregate of 180,000 deferred sharesof 1s. each. The rights attaching to the two classes of shares were such as to protect the interests of the National Film Finance Corporation while at the same time ensuring that the deferred shareholders would benefit if and when the company became profitable.
§ It was made clear in the reports of the National Film Finance Corporation for the years ended March 31st 1957, 1958, 1959 and 1962 that in the opinion of the Corporation its holding in British Lion was an inappropriate investment which should ultimately be sold to suitable private interests. Statements to the same effect were made by Board of Trade Ministers in the adjournment debates on 15th July 1958 and 22nd January 1959.
§ Attempts to acquire British Lion Films Ltd. by various private interests continued but understandably had an unsettling effect on the management and staff of the company. The National Film Finance Corporation therefore decided that the management of British Lion Films Ltd. should be given adequate time in which to make the companyprofitable and announced on 11th December 1958 that "no negotiations for the sale of the Corporation's interest in British Lion Films Ltd. are in progress and no such sale is now contemplated."In November 1959, in the belief that the deferred shareholderswere the most suitable purchasers, the National Film Finance Corporation initiated negotiations with the deferred shareholders to sell the company to them. These negotiations, which were extremely protracted, ultimately led to a proposal which was acceptable to the National Film Finance Corporation but which was rejected by the then President of the Board of Trade.
§ Further negotiations led to an agreement concluded in November 1961 between the National Film Finance Corporation and the deferred shareholders, the essence of which was that in return for the deferred shareholders'agreement to forego any residual rights which they might have to taxation benefits derived from the losses of the company and its predecessors in business when the options referred tobelow matured, together with their agreement to continue to make their services available to the company until March 1964, a series of options would apply to decide the future ownership of the company early in 1964. The National Film Finance Corporation had the first option, to acquire from the deferred shareholders their interest in the company at either a mutually agreed price or an independent valuation, the price under such valuation being the fair value as at 31st December 1963 of the shares on the basis of a sale as between a willing buyer and a willing seller of the entire issued share capital of the company on the open market. This valuation would disregard the right of the company to set off for tax purposes against future profits all past losses incurred by it 424 was not exercised the other shareholders were and its predecessors in business. If this option entitled to acquire the Corporation's interest in the company or to require the Corporation to acquire theirs, in both cases at the same independent valuation.
§ These arrangements were announced to the House by the President of the Board of Trade on 8th March last at the same time as he announced a scheme for the reorganisation of the capital of British Lion Films Limited under which the company would repay to the National Film Finance Corporation £591,000 in cash and realisable securities. In consequence of the repayment subsequently effected, the Corporation and the other shareholders each held half of the capital of the company. The option arrangements continued in full force and effect.
§ As the date for the exercise of the options drew closer there was, not unnaturally, an unsettling effect on the staff and business of the Company. To reduce this to a minimum, therefore, the N.F.F.C. and the other shareholders agreed on 18th July last to bring forward the date of the independent valuation on which the options were to be based.
§ The N.F.F.C. have informed me that they were left in no doubt at that time that Mr. Kingsley and his colleagues would neither exercise their second option to buy the Company nor continue the option arrangements on the same basis for a further period.
§ The valuation of the Company, which was carried out by Sir William Lawson of Messrs. Binder, Hamlyn & Company, was completed early in November. The 600,000 shares were valued at £2 13s. 0d. each, a total of £1,590,000.
§ On 27th November, Sir Nutcombe Hume, Chairman of the National Film Finance Corporation, told Mr. Kingsley, the Chairman of British Lion, that the N.F.F.C. had decided to exercise the first option to buy out the other shareholders. On the 29th November Mr. Kingsley indicated the agreement of himself and his colleagues to this being done on the basis of the valuation, provided that the exercise ofthe option took place by 14th December. At the same time Mr. Kingsley was informed that it was the intention of the N.F.F.C., subject to my approval, to sell British Lion Films Limited to a suitable purchaser. Sir Nutcombe Hume added that, despite the previous indication by Mr. Kingsley and his colleagues that they would not exercise the second option to buy the Company out right, he proposed nevertheless in all fairness to give them one more opportunity of doing so.
§ The first option was exercised on 9th December and on 13th December the N.F.F.C. made a formal offer to sell British Lion to Mr. Kingsley and his colleagues. As both sides agreed that it was important in the interest of the Company's staff and business that the future of British Lion should be promptly settled, and in view of the previous discussion on 27th November, Mr. Kingsley was asked to notify his acceptance of this offer by not later than 1st January. The offer was formally rejected on 16th December.