HC Deb 22 April 1969 vol 782 cc431-40

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Harper.]

12.16 a.m.

Mr. Alexander W. Lyon (York)

When I applied for this Adjournment debate on the bid by General Foods Corporation of New York for Rowntrees of York, I did so in the hope that it might disturb the campaign to further this bid. In so far as that was my intention it has wholly been achieved before I opened my mouth in this debate, because the bid has now been withdrawn.

The events since Friday of last week, when it was announced that it was my intention to seek this debate, wherein the trustees of the various trusts which control 56 per cent. of the shareholding of Rowntrees decided not to accept the offer, and the statement by the General Foods' chairman and by the directors of Rowntrees since, and the withdrawal of the bid, all follow in such a sequence that I hope I can take a certain humble credit in believing that the announcement of this debate has at least crystallised the situation and cleared the air in a way that my constituents will be very glad to hear about.

There were wider interests in this takeover bid than were acknowledged by many of the financial writers in the national Press. To read some of the accounts, which have clearly been inspired by the merchant bankers acting on behalf of General Foods, one would think that the only thing that had to be considered was the interests of the minority shareholders. But, in fact, there were a great many other issues which had to be considered, and although the issue is now academic in so far as it relates to this bid, I think there are some lessons that can be drawn from the experience which it might be helpful to recollect in future incidents of this kind.

It is not my intention this evening to attack the concepts of mergers or takeovers. It is, in my view, one of the great achievements of this Government that in setting up the I.R.C., and in the other efforts they have made to restructure British industry, they have signally achieved the rationalisation of British industry which was long overdue, and I hope that process will be continued.

Equally, it is not my intention to attack the idea of American investment in British industry. Clearly, American investment has much to offer in furthering technological change, in new techniques in management and marketing, all of which can lead to greater efficiency in British industry. What I would urge in relation to this bid is that these beneficial criteria both for take-overs and for American investment cannot be applied blanket-wise to every bid situation, which appears to have been the attitude of the national Press, but that one has to look at the particular effects of the given situation and decide in the national interest in either allowing or disallowing the bid, or furthering or not furthering it.

In this situation we had a firm which is a very significant firm in the English confectionery business—the second, I think, in size—which by any standards was efficient. Its marketing process has been responsible for creating a number of brand names which are selling exceedingly well, and new lines have been introduced in the last few years which have been accepted by the public and are selling well not only in this country but in many parts of the world. This firm's exports are a significant addition to the British balance of payments and are, I would think, the kind of example that many other British firms could follow.

In addition, in the last few years Rowntrees have invested in a base in Europe which was extremely expensive. It took a great risk in starting the venture. The venture is now breaking even, and the possibility of considerable profit in the near future is such as ought to delight the heart of the Chancellor of the Exchequer, whatever it does for the shareholders of Rowntrees. Equally, a new marketing and technical agreement with Philip Morris of America has now—

Mr. Deputy Speaker (Mr. Harry Gourlay)

Order. The hon. Gentleman must raise only matters for which the Minister is responsible. The Minister can hardly be regarded as responsible for the way in which the Rowntree business is conducted.

Mr. Lyon

With respect, Mr. Deputy Speaker, if I may put the background to my point before I reach the point, it will, I hope, have greater effect on the Minister. The point that I shall be coming to in due course is that this was the kind of American investment in British industry which ought to be discouraged, that there is no power at the moment to discourage it, and that it would be useful in considering any extension of the power of the Board of Trade to consider such a situation.

Mr. Deputy Speaker

Order. The hon. Gentleman cannot suggest any new legislation in an Adjournment debate.

Mr. Lyon

With respect, Mr. Deputy Speaker, we shall possibly proceed more quickly if I may make my point. We are not discussing new legislation. We are discussing the kind of attitude which the Board of Trade takes to possible American investment. It does not require new legislation. It requires a different policy in deciding what is in the national interest. So far the policy is defined and does not include a situation such as obtains in this take-over bid. My argument is that it ought to do.

I say that this was an efficient operation here in this country which was profitable up to the last few years, when its profitability declined for two reasons. The first was that it was investing very heavily in Europe, and this inevitably had an effect upon its profit ratio. But equally—and I was only too conscious of this when the bid was made—over the past two years the working of the prices policy of the Government had operated adversely against any firm in the British confectionery industry which was dominated by large units, and, therefore, very easily amenable to the pressure which the Government could put on it in exercising their prices policy. When I discussed the prices policy with Rowntrees I was told that this was one of the dangers, and I, too, became aware that the danger which had been foreseen had materialised.

It was partly for those two reasons that the profitability of Rowntrees in the last couple of years was less than the shareholders expected, and it made it possible for this bid to be made.

That having been said, however, it does not detract from my general conviction that this is a highly efficient firm and that nothing the Americans could add to it would make it more efficient. Nor does it detract from the point that the export potential of this firm is very great even as it stands. When it is linked to the Mackintosh merger, its export potential is enormous. Therefore, no benefits in terms of exports would be significantly increased by the General Foods bid. What General Foods was seeking to do was to buy the technological "know-how" of this company to use it in the American market and, equally, to adopt the base which Rowntrees had built in Europe for its own development.

When one talks about technological "know-how" in relation to chocolate, there is perhaps an invidious comparison with hovercraft and carbon fibre, but the British confectionery industry is almost—indeed, it might be said that it is—paramount in the world. For some reason, the customer likes British chocolate more than he likes most other national makes, perhaps with the exception of the Swiss. Whereas the general level of eating confectionery in Europe is 4⅛oz. a week, in this country it is 7 oz., and in the United States it is only 3, 4 or 5 oz. in some areas. So the British confectionery industry has been an extremely successful industry. Of the major international companies, three are British and only one is American, and that one uses British "know-how".

General Foods, with no confectionery in this country, wanted to buy that know-how. It was offering cash for each share in Rowntrees, and presumably was to use that "know-how" to exploit the American market. If it had tried to do it by buying American confectionery industries it would probably have been stopped by the anti-trust laws in America. Yet this giant conglomerate, stopped from doing that by American legislation, could come to this country and buy as it would, or so it thought. There would have been real damage to the British national interest in allowing this bid to succeed. There would have been damage in the sense that our technology would have been bought by the Americans. There would have been damage in the sense that, although there might have been some increase in exports, the profits would flow back to the United States and, therefore, there would have been a drain on balance of payments on current account, although initially there would have been a sharp increase on capital account, but also General Foods would have obtained and exploited the European market which had been built by British investment.

It seems that on that basis there was a jolly good case for denying the bid in the national interest. Yet the case was never allowed to be put in the financial journals until quite recently. All that one heard was that the minority shareholders who had the right to sell their shares at the highest rate and some-how or other the trustees of the trust who control the major shareholding were being unfair to the other shareholders and that they ought to be reported to the take-over panel for that reason. Even on a purely commercial judgment there are good grounds for saying that the long-term prospects of a Mackintosh-Rowntree merger are far better than the prospects from General Foods. Apart from that, the trustees were performing a public duty in the national interest in refusing the bid, a duty which should never have been laid on them but should have been laid on the Board of Trade.

It is this aspect of the matter which most concerns me, because the pressure which has been brought to bear through the newspaper columns on the trustees has been intolerable. I do not believe that it is any part of their duty simply to look to the interests of the minority shareholders. They are entitled to reject a bid on any grounds they prefer, just as any other shareholder is. They are not, surely, to decide only on the price of the share, though this seems to have been the general newspaper view.

On this point I call in aid a very powerful article by Lord Goodman in the Sunday Times of 12th January. Although I rarely find myself in agreement with him, the article epitomises my argument. In the course of it he says: I believe that any solution requires the firm recognition that the issues involved"—takeover bids—"transcend the interests of the shareholders as shareholders, and that virtuous as they may be as a class our devotion to their interests, regardless of other factors, is misguided and damaging to the national picture. That is pure common sense.

There are matters at issue in a big take-over bid like this such as the security of workers, the perpetuation of the unique labour relations of Rowntrees, the effect on the economy of a city like York isolated from every other urban area, questions about the public interest, the export potential of the alternative groups, the kind of investment which has been made in Europe which might be lost to this country, and the drain on the balance of payments of the profits of the company going back to the United States. All these issues were vital, and should have been considered by someone.

It is true that the Board of Trade is empowered to consider the question of the effect on competition within the economy in deciding whether to put the matter to the Monopolies Commission. But, subject to that, its present policy suggests that it has very limited room for intervention in this kind of merger or take-over. I should like to see this policy widened so that any such future American take-over bid, with only really an American company to gain from it, should be frowned upon and, if possible, forbidden altogether.

12.34 a.m.

The Minister of State, Board of Trade (Mr. Edmund Dell)

My hon. Friend the Member for York (Mr. Alexander W. Lyon) is in the delightful position of having succeeded in his case before he presented it. He apparently asked for this Adjournment debate in an attempt to defeat General Foods' bid. General Foods having withdrawn it, he is happy. This leaves us, as he says, with a somewhat academic debate, though I appreciate his attempt to draw from the situation certain lessons that he believes we should learn.

My hon. Friend spent some time reviewing the commercial-industrial record of Rowntrees, pointing out that it was a very efficient firm, engaging in exports to a significant extent, and, judging from his speech, I would guess that if he were a shareholder in Rowntrees—I do not know whether he is—he would not have accepted the bid, so confident is he in the future. I am delighted to hear what he says, and I hope that his confidence is in every respect endorsed. I certainly have no reason to think it will not be. He has certainly invested a great deal of confidence in this firm, which I am sure is justified.

My hon. Friend is making a judgment on the facts of the case as he sees it. It is true that in any take-over bid the shareholders of a company have to assess whether the bid is worth accepting. We were not saying, when we decided not to refer this bid to the Monopolies Commission, that the shareholders in Rowntrees should accept the bid. What we were saying was that, subject to certain assurances that we secured from General Foods, we did not think it right to refer this bid to the Monopolies Commission. Insofar as there was danger of public detriment, we thought that that danger was covered by the assurances which we got from General Foods. We received specific assurances that General Foods would maintain and extend production and exports, and that no action would be taken which would lead to the running-down of production and employment in the United Kingdom. Subject to those assurances, we saw no reason to refer this to the Monopolies Commission.

My hon. Friend began by saying that he does not attack mergers; on the contrary he congratulated the Government on their industrial policy. Nor does he attack American investment. He saw considerable advantages in such investment in this country. I do not need to go into the advantages; he referred to some of them. But he said that these are not policies that can be applied blanket-wise. Evidently he wishes us to discriminate; but we do not attempt to apply these policies blanket-wise.

We look at the facts of particular cases and attempt to judge the cases on their merits. If my hon. Friend will read the excellent speech by my right hon. Friend the President of the Board of Trade, made during the course of the Budget debate, he will see how we operate our monopolies and mergers policy. I do not think that anyone could claim, reading that speech, that we have any blanket approach to mergers. On the contrary, we take the same view as my hon. Friend explained, that there are in many cases industrial advantages to be gained from mergers. But there are cases where it is necessary to take action against them and refer them to the Monopolies Commission because there is a possibility of public detriment.

Incidentally, I would remind my hon. Friend that a bid is not defeated by a reference to the Commission. The Board of Trade has no power to stop a takeover bid. What it has power to do is, in certain appropriate cases, to refer the bid to the Commission. Only if the Commission makes a recommendation to that effect to the Board of Trade has the Board of Trade power to stop it. I make this point to remind my hon. Friend that even if he had got his way, and the Board of Trade had decided to refer the bid to the Monopolies Commission, this does not mean that he would have succeeded in what was evidently his objective. That would have depended on the report of the Monopolies Commission.

Then my hon. Friend says that we must have no blanket approach to inward investment, and again I agree. Obviously, there may be cases where inward investment should be resisted, or where assurances should be obtained. One knows of many cases where the Government have thought it desirable to obtain assurances. My hon. Friend appears to be afraid that we have no powers to deal with cases where it is judged to be contrary to the national interest that a particular act of proposed inward investment should take place.

Mr. Richard Wainwright (Colne Valley)

Would the hon. Gentleman be good enough to tell the House whether included in the heading "possible detriment to the national interest" is the disappearance of almost unique industrial procedures which have been built up at Rowntrees?

Mr. Dell

If the hon. Member reads the Act dealing with monopolies and mergers he will find that very wide matters can be taken into account by the Monopolies Commission in making its judgment on any set of circumstances. The Board of Trade has to judge, in the light of the circumstances displayed to it by the companies involved, whether to refer a case.

My hon. Friend fears that there is no power. In fact, there is power. It was not used in this case, but it exists. Under the Exchange Control Act—which is a matter not for me but for the Chancellor of the Exchequer—it is possible to refuse exchange control permission. Where such permission is necessary, as it usually is in cases of inward investment, it can be refused. One factor which can be taken into consideration in that refusal is the effect on the balance of payments.

My hon. Friend's argument suggested that his view was that our balance of payments would have been harmed by this inward investment. Certainly it is in the power of the Treasury to take account of the balance-of-payment effects of a particular inward investment before giving exchange control permission. There is power, just as, if there is a possibility of public detriment, there is power to make a reference to the Monopolies Commission.

My hon. Friend seemed to take the view that it was part of the function of the Board of Trade to bolster the position of the Rowntree Trusts which, he felt, were subject to intolerable newspaper pressure. The Rowntree Trusts seem to have taken their view despite the newspaper pressure of which he was afraid. But the Government have to act within the legislation, which governs our actions just as it governs the actions of every citizen. In so far as social considerations were involved in this bid—and I recognise those social considerations and the unique character of this company—I think that they were social considerations which the Trusts, under the trust deed, are obliged to take into account. That is, I think, a correct interpretation of their position.

We are, in fact, discussing a bid which has been withdrawn. If my hon. Friend's fear simply is that there is no power, I assure him that there is power. If he is worried that the Government are not sufficiently informed on all matters on which they should be informed about the implications for this country of inward investment, I can inform him—as has been announced to the House—that we are carrying out a full-scale study of the implications for this country of inward investment. I hope that much emerges from that study for us to learn about the effect on this country of the many instances of inward investment which have taken place with, as I think the House is in general agreed, considerable benefit to the United Kingdom.

Question put and agreed to.

Adjourned accordingly at sixteen minutes to One o'clock.