MONOPOLIES COMMISSION (Hansard, 30 June 1969)

§ Mr. Keith Stainton (Sudbury and Woodbridge)

I beg to move, That this House views with concern the lack of a clear Government lead in relation to recent reports of the Monopolies Commission and related matters When I put down the Motion, I thought that I would thereby be doing a great service to British industry, the City and the public generally. Alas, it now looks as though I bought a pig in a poke, for I have only 20 minutes to go. That is nobody's fault, but I hope that it will be understood if I skin various points. I hope that the Minister will not interpret it as lack of courtesy if I curtail his latitude for reply.

The recent reports of the Monopolies Commission which I have particularly in mind and which I want to make the centre of the debate are the last two, that on the agreed take-over bid by Unilever for Allied Breweries and the contested bid by the Rank Organisation for De La Rue. Those reports are of great significance. First, they make specific comments on the two deals; second, they display a substantial widening of the criteria on which the Commission works; finally, both reports have a common annex headed "General Observations on Mergers". The appendices to the annex are highly relevant to the future development of monopoly, merger and take-over practice in this country

. The reports come at an important juncture in the industrial affairs of the country. The year 1968 saw acquisitions of large or public manufacturing companies totalling some £1,600 million. Although the number of companies involved was down on previous years, the actual finance was more than three times as great as five years previously. Therefore, superimposed on the general background of take-overs and mergers there is clearly the problem of bigness.

These fears of bigness bring in their train many questions about City ethics and financial techniques. We have the expression "funny money" which derives from the fact that debentures or loan stock are liable before tax is charged whereas the victim to be taken over has probably paid corporation tax before striking its return to its shareholders.

99 There are problems of job security, and as part of the general background may I refer to "Le défi Americain"? I am sure that the Minister will understand all the implications of the title of that book. These fears are often emotive, but that is not surprising. The old familiar pattern is disappearing, and disappearing rapidly. The number of United Kingdom manufacturing companies quoted in the appendix to the Report of the Monopolies Commission fell by no less than 31 per cent. between 1961 and 1968.

There are always fear and emotion when millions are on the march, and I refer not to the millions who might be mentioned in the headlines of the Morning Star but to millions of pounds, shillings and pence. However emotively expressed, these fears are by no means without substance, and they point to the need for a clear lead from the Government.

I turn now in terms of bigness and concentration to the confusion which is inherent in the 1965 Monopolies and Mergers Act, in which bigness and market power are utterly run together. In fact, it is impossible to find any rationale for the £5 million. On the whole, however, I agree with the Monopolies Commission when it says in its annex that there is no reason to think that this merger activity has so far led to the growth of companies whose absolute size is such as to raise important questions for the public interest. My information would suggest that the £5 million, allowing for the change in the value of money, is probably now too small anyway.

But I stress the use of the phrase "so far" as employed by the Commission, and I put particular emphasis on the disappearance of the decision-making units. Although large companies, large corporations and conglomerates, if well organised, have subsidiary structures which are capable of decision-making, they are vastly different from the independent company which has to make its own way with its own stockholders.

I have referred to conglomerates only in passing, and I say a word or two more on this subject in the hope that the Government may respond to it specifically. To a degree, the development of 100 conglomerates emphasises the point about bigness and concentration. There is a general fear that they will "make a mess of it", a fear of the wheeler-dealer kind of operation and the fear that the growth of conglomerates may merely be an excuse for bad management as fresh acquisitions may cover blunders in the past.

I was delighted on the whole to see the balanced way in which the Commission dealt with this point when it said that the term "conglomerate" as implied in this sense was clearly pejorative. Although we have to watch the situation carefully, I believe that the conglomerates have a useful rôle to play—this is recognised by the Commission—in terms of providing finance and management expertise within a certain defined area. The Commission does not develop the argument of the virtues of conglomerates in terms of filleting the rather sleepy company which has lost its way, but I see no reason why one should not be entirely forthright about this and proclaim that the conglomerate is a service to the economy in defined circumstances.

I was particularly interested by the reference in the appendix to account presentation whereby not only conglomerates but all companies might in future be required in the presentation of their statutory annual account to note the impact that acquisitions had had on their profitability and assets situation. This is not an easy matter to deal with, because in the new grouping which arises out of the acquisition the company taken over often loses its identity—it is merged, it is rationalised. But I believe that legislation along these lines, or, failing that, some co-operation from the Stock Exchange and the chartered accountants acting in advance, as the Jenkins Committee did with the last Companies Act, could improve matters, and that firms might well be encouraged to act on that. Such figures would form part of the statutory accounts unless an auditor certified that it was impossible to make a fair representation on that point.

Throughout the country there is a degree of ambivalence about mergers. It is recognised that largeness has a rôle to play in terms of competing internationally and coping with rapid obsolescence with the advance of technology. At the same time, many people are concerned about 101 the relatively small home market compared with the U.S.A. and the European Economic Community.

An aspect of ambivalence on which I want to tackle the Government concerns specifically the I.R.C. I do not want to lose my way in the short time which I have by discussing its raison d'etre but may I tell the Minister of the kind of reference to the I.R.C. with which one meets not merely in the City but among provincial industrialists? One example is that it is said that the I.R.C. can "get away with murder". With that one finds the sort of expression which I recently heard from a leading merchant banker who said, "When we go to the Monopolies Commission, they treat us like a lot of pickpockets." When the two expressions are aligned, the result is extremely disturbing.

I would go so far as to say that unless the I.R.C. and the Industrial Expansion Act are handled with transparent, even laborious, regard for the best aspects of monopoly merger philosophy from now on, then merger policy in Britain risks being hurried into an early state of disrepute. What is public virtue will become private vice. Legislation governing mergers and monopolies now extends to 13 major statutes, five quasi—statutesif I could put the Stock Exchange rules and similar rules under that heading—four separate Ministers and the N.E.D.O. Clearly, there is a need to sort this out so that people can see where they are going.

Second, there is the criterion for reference by the Board of Trade to the Monopolies Commission. This is apparently extending at a rate of knots. We heard the speech made by the President of the Board of Trade in this House on 17th April. What disturbs me particularly—I shall touch on only two points—is that emerging from these last two reports of the Monopolies Commission there is what I would call the debasement of the shareholders' judgment and the general theme which appears to be that they will react only to immediate financial advantage.

This is a point of great misconception but of great profundity. It is a matter requiring the most careful attention and correction. In terms of the criterion used by the Commission, I very much hope that the Government will find it possible 102 to disclaim entirely the type of staff poll held at De La Rue during the course of the Monopoly Commission's investigations. In this context De La Rue acted as agents provocateurs, canvassing its agents abroad and conducting the poll among its staff at a point when tensions were obviously running extremely high.

The only parallel we have with this is the attempted take-over of Edwards High Vacuum by Varian Associates some three or four years ago. It is most ironic that the outcome there, although that approach was frustrated, was that the company fell victim, at a lower price later, to an English company. I believe that the executives have subsequently become extremely unhappy and are now leaving.

I wish to propose action to amalgamate the Government agencies and produce guidelines in terms of take-overs. I want substantially to qualify the expression "guidelines". I have read and re-read the Conservative Government's 1964 White Paper which contemplated public interest guidelines to assist the Monopolies Commission. It still makes very good reading, but my impression is that it is not quite what is called for. If the Government would get a move on and sort out the various agencies and let us have not merely a glossary or bibliography of the various ways in which we proceed but something more of the philosophy of the Board of Trade and its approach to these matters, that would be sufficient for the time being.

The delay by the Board of Trade is of considerable concern throughout industry. We must compliment it on the restraint it has exercised in references under the 1965 Act. Whether this will hold good now in view of the last two reports remains to be seen. There can be no doubt that the Board of Trade is exceedingly slow. It took nearly two months to make up its mind to refer the Unilever and Rank bids to the Commission, which was asked to report within not more than four months. The Commission beat the target by about a fortnight. Let us round it off at six months, and we see the effect of this and the impossibility of the situation in terms of the dropping of the Unilever bid on account of a change in market circumstances.

103 I stressed at the outset that I meant no discourtesy to the Minister, but I should like to speak a little more about the disrepute which has tended to cloud some of the practices in the take-over area. I refer specifically to the City code on take-overs and mergers. The first edition of this did not get off to a good start. The staffing and sanctions in the code did not work, as we saw with the Gallagher bid and the News of the World battle. The April 1969 code is good, and I should like to see the Board of Trade embrace it publicly instead of at a distance, through an official, as has been the case up to now.

My complaints about the code and its operation are somewhat detailed, but to be particular, there is no industrialist on this panel. There is a finance director of I.C.I., but I do not regard him as an industrialist in this context. I am full of compliments for the new Director-General, Mr. Ian Fraser; with any luck he will do a good job. Case histories should be made available from the take-over panel so that we all know where we are going.

There are many other points I should like to make. It has not been my intention to be discourteous to the Government, and I hope that in the very few minutes remaining to him the Minister of State may be able to put his finger on one or two of the salient points, as he sees them.