MONOPOLIES AND MERGERS

HC Deb 10 November 1969 vol 791 cc89-112

6.30 p.m.

The Minister of State, Department of Employment and Productivity (Mr. Edmund Dell)

I beg to move,

That the Restriction of Merger Order 1969 (S.I., 1969, No. 1134), dated 6th August 1969, a copy of which was laid before this House on 11th August, in the last Session of Parliament, be approved.

This order, which was made on 6th August, 1969, prohibits any steps resulting in a merger between the Rank Organisation Ltd. and the De La Rue Company Ltd., and the making and carrying out by the Rank Organisation or any subsidiary of agreements or arrangements for the acquisition of any stock or shares in the De La Rue Company Ltd. It gives effect to the report submitted by the Monopolies Commission under Section 6 of the Monopolies and Mergers Act, 1965, on the merger proposed between the Rank Organisation and De La Rue. The commission concluded that the proposed merger operated, and might be expected to operate, against the public interest, and recommended that it should not be permitted. The then President of the Board of Trade announced his acceptance of the Monopolies Commission's Report on 2nd June.

In general, whenever the Monopolies Commission has reported that a merger between two companies would be against the public interest, it has been the practice of the Board of Trade not to rely upon the use of the statutory powers to prohibit the merger but to invite the chairman of the company, or chairmen of the companies, concerned to undertake not to proceed with the merger. In accordance with this practice the chairman of the Rank Organisation was asked to undertake that the Rank Organisation would not renew its former bid for the De La Rue Company or take any other actions to place the organisation in the position of controlling company. lie declined to give any such undertaking, as indeed he was fully entitled to, and accordingly to remove all uncertainty about the position, and to give full effect to the commission's conclusion, the President of the Board of Trade decided that he had no alternative but to lay the present order before Parliament. This is the first time that an order has been made under the power given by the Monopolies and Mergers Act 1965 Lo prevent a merger which the commission has recommended should be prohibited.

It is not necessary to repeat at length the arguments which led the commission to its conclusion that the proposed merger would be against the public interest. These are set out in full in the report which has been placed before Parliament. Indeed, I do not intend to speak at any length in the hope that I shall have the opportunity to reply at the conclusion of the debate.

In summary, the view of the commission was that there was a serious risk that the efficiency and trading volume of De La Rue would be adversely affected by the proposed merger and that any loss of efficiency would harm the public interest, including the balance of payments.

The commission stated that, whilst it could not exclude the possibility that if other things were left unchanged by the proposed merger the marketing orientation of Rank's management might lead to greater efficiency, this effect was, in its judgment, outweighed by the real risk, bordering on near certainty in some matters, of loss of efficiency with damaging long-term implications, together with a real risk of loss of important business and business opportunities. These losses, in the commission's opinion, would be difficult or impossible to make up later.

Having received submissions from both companies and having had the benefit of hearing their representatives, the commission formed the opinion that the merger would bring with it a real and serious risk of damage to the efficiency of De La Rue's business, of its effects on management personnel, and consequently on overseas trade connections.

The then President of the Board of Trade, in accepting the commission's report, was satisfied that the commission had satisfactorily carried out its function of investigating the implications of the proposed merger and that the conclusions reached by the commission were sufficiently supported by the evidence and the arguments presented in the body of the commission's report. The decision to make the present order was a necessary consequence of this view once it became clear that the Rank Organisation Ltd. would not voluntarily agree not to proceed with the merger.

I therefore ask the House to approve the order.

6.35 p.m.

Sir Keith Joseph (Leeds, North-East)

We are grateful to the Minister of State for introducing this order briefly and courteously. It is, as he says, the first order made under the Monopolies and Mergers Act, 1965, and we do not think it right to let it pass without making some comments on the working of the Act.

We do not intend to divide against the order. We simply want to use this opportunity to make some general comments on the policy behind the order before the House.

Before going on to the substance of the argument, I ask the Minister to convey to his right hon. Friends that there was one minute pinprick that could have been avoided by the Government in the procedure for handling the decision that they reached.

The Minister will remember that for some reason or another—I cannot recall what that reason was—the Government published their decision before the reports of the Monopolies Commission were available to the public. In publishing their decision, the President of the Board of Trade made use of a term of art, the word "mischief", and said that the Government and the Monopolies Commission could see no way of avoiding the mischiefs that the merger, had it been allowed and had it come about, might have created for the public interest.

We who study these matters know that "mischief" is a term of art. To the public as a whole it indicated a degree of danger to the public interest out of scale with that which was revealed even in the opinion of the Monopolies Commission's report when that report was published. Should this occur again, I suggest that that term of art might be translated into a phrase that would be more neutral.

Mr. Dell

It might be helpful to the House if I make clear immediately that I understand the point that the right hon. Gentleman is making. In future, we hope to avoid this term of art.

Sir K. Joseph

I am grateful to the Minister for that indication.

Since the Monopolies and Mergers Act, 1965, came on to the Statute Book, a great deal has happened in the sphere of mergers. We, for our part, have begun to take into account some of the more recent events in forming our own views. There has been a veritable flood of mergers. If we had to identify a single cause for the release of this flood of mergers, I should say that the conversion of the Labour Party from a wholesale abomination of mergers on ideological grounds to an attitude, first, of neutrality and then of positive encouragement was possibly one of the most considerable factors.

Be that as it may, there has been a flood of mergers and I should like to pay tribute to the then President of the Board of Trade, now Secretary of State for Local Government and Regional Planning, for the way that he resisted what must have been considerable pressure and allowed practically all the mergers that were proposed to be decided yea or nay by the market. I suppose that with the I.R.C. in action as a Government agency it would have been odd if he had behaved otherwise. Nevertheless, he must have been under considerable pressure, and we pay tribute to him for resisting it.

The pros and cons of mergers have been debated frequently. I think that we can all probably accept that while bids and takeover projects distract management and that that can in certain circumstances be a disadvantage, on the other hand, the threat of bids or takeovers, if managements do not make good use of their assets, is a stimulus which is, on the whole, beneficial to the public. The threat of takeover, if managements do not do their jobs properly, keeps them on their toes. Even abortive bids can sometimes be beneficial. For instance, the recent I.C.I. bid released an astonishing surge of performance by Courtaulds.

The Government accept, as they show in their reaction to this and other mergers, that, in general, mergers are either beneficial or neutral and can be left to the judgment of the market.

Behind this order, and connected with it, we have three documents. First, the Monopolies Commission's Report on Rank /De La Rue in the first half of document No. 298. Secondly, the Monopolies Commission's appraisal of mergers in general in the second part of this same document, from which presumably the Government took their considerations in deciding how to react to the first half of the document. Thirdly, we have the documents in a publication—

Mr. Speaker

Order. We cannot discuss the annexe to the report, nor the Government's Paper on mergers and monopolies. This is a specific merger to which objection has been taken and which the Statutory Instrument forbids.

Sir K. Joseph

I will try to abide by your Ruling, Mr. Speaker.

It is common ground that most mergers can be left to the judgment of the market. The Government have specifically rejected legal guidelines—probably rightly. It would be common ground that if the Government identified a particular evil that might result from mergers they are free to bring legislation before the House —for instance, to protect by an Amendment to the Redundancy Act middle-aged people who are made redundant. Otherwise the Government agree that the market should decide in practically every case. After all, shareholders invest and risk their money, so it is only right that they should be given the final decision, unless the public interest is clearly at stake.

It is again common ground that there is one particular kind of merger which should not be left to the final decision of the shareholders. I refer to a merger which threatens to create market dominance or monopoly. The 1965 Act seems to make abundant sense where there is a threat to create a monopoly that might be against the public interest. It seems sensible to refer such a merger to the Monopolies Commission.

It is difficult enough for the Monopolies Commission, even here, to decide what is in the public interest, as witness the change of mind by the Government within two years on the Associated Fisheries/Ross case.

Here in the order there is no threat to competition and no threat of market domination. The reference to the Monopolies Commission by the Government specifically excludes any question of monopoly. The companies covered by the order are both international traders. They are both market leaders; they are both pioneers in giving information more than the law requires to their shareholders; they are both partners with American giants; they are both proud and confident managements—and if they were added to each other a monopoly situation would not be created. No one knows whether the market would have allowed the merger or thrown it out had the Government not intervened.

It was referred to the Monopolies Commission because it was a conglomerate merger. It was one of the new class of conglomerate mergers on which the Government wanted advice. I suspect that it is common ground that increased disclosure under company law can help tame any conglomerates that arise in this country by subjecting their managements to detailed public appraisal of their performance in each field in which they trade.

Subject to that, we believe that conglomerates are neither inherently good nor bad. If there were too many of them, plainly the tendency might prove worrying. In extreme, a vast increase in the number of conglomerates could threaten to change the industrial and even the social and political fabric of our society.

If there were a handful of companies in this country, each trading in a large number of different fields, it would be possible for the Government of the day to sit in a single room with the heads of the industries and firms employing the majority of the population, and plainly the implications for freedom would be serious. But we are nowhere near that position. In America, there has been a flood of conglomerate mergers, and Dr. Mueller, of the Federal Trade Commission, only this week produced a 700-page report on the implications. Conglomerate mergers could become significant here. Their implications are spelt out in the two reports behind the Order in front of us.

A conglomerate can, in principle, increase efficiency by carrying good management into areas where it is needed. I hasten to say that there is no question in this merger of a sharp difference between the management skills in the two companies. There is no significant conglomerate trend in this country, and there is no monopoly trend in this merger.

Why, therefore, was this decision removed from the shareholders concerned? The reason is given to us in paragraph 82 of the Monopolies Commission Report, whose final words are: We "— that is, Monopolies Commission— conclude that the stock market's reaction cannot, therefore, be relied on to reflect the efficiency aspects of a take-over. Before it reached that conclusion the Monopolies Commission argued that shareholders are often interested only in what is offered to them in a bid—be it cash or paper—and are not interested in the prospects of the company in which they are at present holding shares. But if a bidding company believes that it can make better use of the assets of another company and thus can afford to offer more than the current market value set upon that company's shares, is it not in the national interest, subject to increased disclosure, that the bidding company should at least have a chance to put its proposals to the shareholders of the other company?

It is said that the bidding company can offer the moon. I wonder whether that is true. First, during the last few months the glamorous price-earning ratios which might have put some companies in a position to offer very good terms, in paper, to the shareholders of the company proposed to be acquired have lost their sparkle. Some of the glamour stocks of last year have tumbled sharply.

Secondly—and I have referred to this —disclosure is a discipline upon the bidding company, and, thirdly, the bidding company also has its restraint because it has to justify its offer to its own shareholders. If it offers the moon its own shareholders will rightly protest. Even though, in this case, the Rank Organisation is not shareholder-controlled, it has to satisfy the investor if it is to keep the market's respect.

So we have the position that the Government in general agree that the shareholders should decide on mergers except where a monopoly is threatened. In this case they withdrew that right to decide from the shareholders because, I believe, they accept the Monopolies Commission argument in paragraph 82, that the Stock Market cannot be relied upon to reflect the efficiency aspects of a take-over. The implications of that sentence is that someone else can be relied on to reflect the efficiency aspects of a take-over. Who is that? Presumably it is the Monopolies Commission itself and then the Ministers.

The implication is that whereas the market cannot decide, the Monopolies Commission and the Ministers can decide where the national interest lies in terms of efficiency. But the whole of the report on the proposed merger shows just how nicely balanced are the arguments for or against the merger, in terms of public interest. They are extremely nicely balanced. Is it sensible to expect the Monopolies Commission and the Ministers to judge such finely balanced arguments and possibilities?

I shall not go over the arguments—they are spelt out in paragraphs 40-43 of the document—but, in brief, the Monopolies Commission concluded that if the merger went through there was a risk that some of the senior managers of De La Rue would quit; that, as a result, some trading relationships with foreign companies and foreign individuals would be jeopardised, and that if those relationships were jeopardised some of the trading volume of De La Rue would be at risk, and if the trading volume were at risk the balance of payments might suffer.

There was a linkage of assumptions on which the Monopolies Commission recommended, on balance, that the merger was against the public interest. The whole of this linkage depended upon the attitude of De La Rue's senior management, or some of it, to the possibility of Rank, taking over their company. I accept that the managers concerned were entirely within their rights in their passionate conviction that a Rank take-over would damage the company and its shareholders and were prepared to risk their jobs in order to express their point of view.

But there are three things to be said about the attitude of management which is disclosed. First, if key managers had left, damage might have been done. Of course it might. But, second, even if damage were done in one sector, who could tell whether the arrival of Rank, had the merger gone through, would not have more than offset that damage by improvements elsewhere? No one can tell.

Third, a company's management can be outstanding and very sure of itself, but it cannot guarantee the future, even if it beats off the bid. We have the recollection of what happened to Edwards High Vacuum when its managers also threatened to leave if, in this case, an American company, Varian, bought Edwards High Vacuum—and we know what happened afterwards. So the attitude of management, which is at the very centre of this order, is important but, in our view, not conclusive.

So the Monopolies Commission, given, I now suggest, a wrong task, decided that the public interest would be better served by barring the merger on a number of linked assumptions. What was the damage to the public interest which was feared? It was a marginal loss of balance of payments. No one can be sure that it would have occurred. The Monopolies Commission itself showed a much more robust attitude to balance of payments when, in the Cellulosic Fibre reference, it recommended that tariffs should be brought down in the particular case, although the inevitable result of such an operation, in the short term at least—perhaps only in the short term—would be to damage the balance of payments.

The Monopolies Commission may have been right or wrong. No one can tell, but the point which I have been trying to make in this rather laborious argument is that there is no reason to think that the Commission is any better equipped to judge who will make better use of the assets than the shareholders and the market concerned.

I have already stressed that, had there been any threat of market dominance or monopoly, we should, of course, have agreed that the merger might well have been referred to the Monopolies Commission, and might well, justifiably, have been barred. But we doubt whether efficiency or balance of payments questions are really suited or even relevant to the Monopolies Commission type of inquiry. After all, even if exports were shown to be likely to suffer, who can tell whether the resources so released might not have been switched to repelling imports by manufacturing import substitutes?

We accept also that, if the pace of change towards conglomerates accelerates, there might be a case for referring some conglomerate mergers to a tribunal, but there would surely be need for a higher minimum than the £5 million combined assets in the Monopolies and Mergers Act, 1965. Moreover, if conglomerates came to be referred—I repeat that it might be necessary if the trend increased—there would surely be need for a special remit to the tribunal concerned.

I think that it is common ground that conglomerates, given disclosure, can spread good management, and if the threat of market domination is removed, there would surely need to be special guidance given to any tribunal which was set to decide on any particular case. The question then would not be marginally more or less efficiency or marginally more or less on the balance of payments, but whether the particular conglomerate under consideration added to such other conglomerate mergers as had occurred threatened the known fabric of social, political or economic life. I repeat: we are nowhere near such a situation here.

The Government have rightly, in our view, rejected legal guidelines for mergers. The Government, rightly, have the power to refer to the Monopolies Commission mergers which threaten to dominate a market or a monopoly. The Government, in our view rightly, accept that the market, that is, the shareholders, should decide in practically every other case. But, in a handful of non-monopoly cases, the Government reject both law and the market.

In these cases, they allow the decision to rest on three successive unpredictable reactions—first, the reaction of Ministers to a proposed merger: should it be referred or not? The second is the reaction of the Monopolies Commission: should it be recommended or not? The third is the reaction of Ministers again to the Commission's recommendation. In our view, the Monopolies Commission, diligent, conscientious and capable though it is, is no better equipped to make these decisions in the sort of case which we are discussing, in the present environment, than the market is.

The result of the Government's policy is merger control used haphazardly and arbitrarily. In a handful of cases the market is rejected and Commissioners, Ministers and sometimes even management are enthroned. This is not an attitude which we like.

7.0 p.m.

Mr. Peter Hordern

(Horsham): I wish at the outset to correct a point made by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph). When referring to Edwards High Vacuum he said that the company had been taken over by Varian Associates. In fact, the company, which is in my constituency, had a bid made for it by Varian Associates, but it was subsequently acquired by British Oxygen at a lower price. That is the whole point.

I am pleased that the House has been given an opportunity to discuss this Statutory Instrument, the first of its kind to have been discussed in this way on a Monopolies Commission's Report. The debate takes place at a particularly interesting stage, since the findings of the Monopolies Commission on the proposed Rank merger have been rapidly nullified by the forecasts of the De La Rue Company, announced last week.

First, however, I wish to refer to the conclusions in the Monopolies Commission's Report and deal with some of them specifically. Paragraphs 81-82 of the Report state: We have next to consider whether, if the proposed merger takes place, the fact of the two enterprises having ceased, in the circumstances of the case, to be distinct enterprises, operates or may be expected to operate against the public interest and in doing so to take into account all matters which appear in the particular circumstances to be a relevant Appraisal of the public interest in the effect of mergers can include their effect both on competition and on efficiency. It may be thought that the term "public interest" is wide, but it was surely never remotely considered—certainly not during the passage of the Monopolies Act; the Minister of State and I took part in those debates—that the public interest could involve an appraisal—a necessarily subjective and speculative appraisal at that —of the future efficiency of the new organisation, because if that is accepted, then we must also accept that a Government-controlled body can examine, assess and promote any move that the Government judge to be in the public interest and, further, can thwart any move which they judge not to be in the public interest.

The second of these two propositions is even more important than the first. The first has been carried through by the I.R.C. But the power to thwart a proposed merger, because of what the Government consider to be the public interest, is a matter of even graver importance

If this practice is once accepted it is surely the height of inefficiency to stop there. The public interest should demand the total abolition of the market system and the imposition of State control and direction. I have no doubt that that is what many hon. Gentlemen opposite want. It is a system which is indistinguishable from that which applies in any Communist State and—

Mr. Speaker

Order. The hon. Gentleman must address his remarks specifically to the Instrument under discussion.

Mr. Hordern

I will only add, Mr. Speaker, that I welcome the distinction between hon. Members opposite and ourselves. It draws a sharp dividing line between the two sides of the House. Hon. Gentlemen opposite think that the public interest demands the close involvement of the State in all these affairs. My hon. Friends and I believe that the public interest demands that these affairs should Pe left alone unless a clear monopoly situation arises.

We are faced with a general proposition by the Monopolies Commission in this Instrument. It is that the Commission's knowledge is superior to that of the market. In fact, this point is specifically made in its report, for paragraph 82 says: … the Commission may, and probably will, have more information than the market on which to base an assessment of the likely outcome. That was a big claim on the part of the Commission, but it resulted in some rather bad luck for the Commission. for its claim was demolished quickly by events.

Hon. Members will recall what happened. Rank offered shares and loan stock to the total value of £43 million for De La Rue. This was equivalent to 69s. 8d. per share. If the shareholders had been allowed to accept the bid, their holdings would today have been worth 80s. or £49.3 million altogether. Instead, as a result of the revised forecasts of the De La Rue Company, they are worth less than half; that is, 36s. 6d. or £22.5 million.

Even worse, the Monopolies Commission must have accepted at face value the De La Rue forecast made at the time of the original bid. It is perhaps reasonable that it could not have foreseen the explosion in the chipboard factory. However, it at least accepted the forecast for growth in central heating and it also accepted the forecast of growth in the Giro system. It did not, however, foresee the snags in the design of the cash dispensing machines. But how could it have foreseen those events? The claim to be able to assess efficiency is blatantly absurd and I hope that we will never hear such nonsense again.

Mr. Dell

Would the hon. Gentleman help me by commenting on two points? First, would he say how the market could have foreseen those events? Secondly, does he take any account in his argument of the possible effect of the shareholders of Rank paying too much for the equity of De La Rue?

Mr. Hordern

The Minister makes a valid point in asking how the market could have assessed this loss. The market could not conceivably have assessed precisely how these affairs could have gone, but it is a risk that it takes. In fact, these risks occur with every company. If they did not, share prices would not move at all. But why should the Government take on that responsibility, through confirming what the Monopolies Commission reported? This is the difficulty in which the Government are placed. They accepted a recommendation of the Monopolies Commission and their authority has been bruised by subsequent events.

The Minister's second question, about the possibility of over-payment by Rank, is speculative. It is a forecast of what might have happened. After all, if Rank had succeeded in the bid, these disasters might not have occurred. One cannot say what might have happened.

We know, however, that the Monopolies Commission was prepared to go as far as to deprive the shareholders of the De La Rue Company of the chance of accepting a higher price for their shares than the market thought their shares were worth under the De La Rue management. Although Rank was sure that it could use the De La Rue assets more profitably than the De La Rue board itself and was prepared to back its judgment with cash—the Monopolies Commission decided that Rank was wrong and should be prevented from trying to prove its point. This must be regarded, therefore, as a positive intervention of the very worst kind; and the result, of course, is that the De La Rue shareholders lost out.

I hope that it is not too old-fashioned a view to take—I do not care very much if it is—but I believe that if a willing buyer meets a willing seller, the business that they decide to do should not be thwarted by an outsider, however powerful, unless it can be shown beyond doubt that what is proposed would be damaging to the public interest.

Sir K. Joseph:

My hon. Friend will remember that the willing buyer had not yet been shown in that the bid had not been accepted at the stage when the Government stepped in.

Mr. Hordern: I

think that my right hon. Friend is assuming that Rank would not have gone ahead with the bid, and that is speculation.

The Government have found it necessary to lay a Statutory Instrument which, if the managing director of the Rank Company had given an indication that the company was not prepared to go through with its bid, would not have been necessary. Thus, what has occurred must constitute a serious blow to the rights of shareholders and must begin to nullify the whole market system.

There is no reason for the existence of the market system if one accepts that a State corporation should act directly on what it considers to be grounds of efficiency. This is not only wrong in principle, but absolutely wrong in practice, and I have never seen in any Government paper a more implausible argument or one which displays such an ignorance of the market than the statement in paragraph 82 of the Report, in which the Commission tries to separate the shareholders' assessment of a company's efficiency from the price of the company's shares.

It does more than that because, in effect, the Commission says that the market's assessments of a company's prospects, which are reflected in share prices, are entirely wrong and that the Commission is right. They are prepared not only to deny the shareholder the higher price for the shares, but to deprive other companies of the support which the shareholder could have given them had he been allowed to receive a higher price for the shares.

The report, in paragraph 82, makes the point that there is the possibility that cash may he received by the company bid for instead of shares. That is so. In retrospect, it now looks like an advanced price, which could have been used for investment in industry, to the great benefit of industry. Instead, on its unproven assessment of efficiency, the Monopolies Commission has deprived industry of the support it could have had, which is a high price to pay. If the result is unjust, damaging and arbitrary, the reason given for not allowing the bid is pathetic.

Paragraph 60 refers to the ballot held among senior executives by the solicitors to the company. Surely, the idea of holding a ballot amongst higher executives to decide whether they should be taken over or not will be used by every inefficient company whenever a bid is made for it and whenever there is any fear among the higher executives of losing their jobs. This is bound to check expansion of any efficient concern of any size.

It does not much matter what the present Government think. It does not really matter, in the long run, what the Monopolies Commission thinks, because all that can be changed. What does matter is what the Conservative Party thinks, and what the country needs is a clear and definitive statement of our policy on monopolies and mergers. But waiting for Conservative policy on these matters is rather like walking into Tutankhamen's tomb. The silence is golden, but it has gone on rather a long time and it is becoming a shade oppressive.

7.12 p.m.

Mr. Dell

Three points have been made in the debate which I can sum up. First, why was the public interest involved in this merger? second, why should we have prohibited the market from being the judge of efficiency in this case? third, there is the specific reason given by the Monopolies Commission for deciding that the merger would be against the public interest, and summed up in paragraph 60 of the Report—that is, the reaction of the management of De La Rue to the offer. I hope that I can make a few comments on these three points within the rules of order to elucidate the Government's thinking on these matters.

First, why was the public interest involved in this merger. even though it did not involve a monopoly situation? This would have been a conglomerate merger. The right hon. Member for Leeds, North-East (Sir K. Joseph) said that such mergers could increase to an extent which would create problems. I do not want to claim that conglomerate mergers are in every case bad. On the contrary, I take very much the attitude of the right hon. Gentleman—that many would add to the prosperity of the country. They have many positive characteristics which are referred to in the annexe to the Monopolies Commission's Report. Nevertheless, there are problems, and problems arising from size.

It is understandable that people should tend to say that problems of market size can arise only in monopoly situations. I think that is wrong. A monopoly situation is defined in our legislation. A statutory monopoly is that which controls one-third of the market. It is a guide, but it would be wrong to suggest that these are the only situations in which the improper use of market size can arise. For example, in a conglomerate, particularly a large one, it is possible for there to be a transfer of resources within a company in order to strengthen one part of the company in a way which would not be available to a specialised firm, which might nevertheless be more efficient.

But then we come to the possibility of increased disclosure, which the right hon. Gentleman mentioned. Indeed, one of the dangers in conglomerates is that one may not have this disclosure about particular segments of a firm which may be inefficient but whose inefficiency is concealed by profits arising in other sections of the firm.

If one could deal with that situation entirely by increased disclosure, this would certainly help. But that is not the situation at the moment. We do not have the legal structure to ensure all necessary disclosures in cases such as this. Perhaps we should. The right hon. Gentleman will have noted that the commission in its report specifically proposed that there should be increased disclosure. That matter is currently being discussed. But increased disclosure is not yet with us.

Second, I remind the right hon. Gentleman that there can be difficulties about increased disclosure—difficulties which should not be under-estimated and which arise particularly in the case of conglomerates. Therefore, although one could attempt by increased disclosure to get over some of these problems, one cannot get over them entirely.

Mr. Hordern

Will the hon. Gentleman explain the difficulties which conglomerates would find in revealing information in the same way as any other company?

Mr. Dell

It is a question of defining in law the necessary requirements for disclosure. Under the Companies Act, 1967, companies are allowed to decide for themselves the different sections into which they will divide the information they give to the public. The question is how one can define in law the requirement to ensure the necessary disclosure to reveal the full activities of a conglomerate. But I accept in principle that much of this problem would be overcome by increased disclosure. The commission made that recommendation, and we are now investigating how far we can meet it.

Mr. Terence L. Higgins (Worthing)

As I understand it, the Minister of State's objection to a conglomerate in these circumstances is that one part might be subsidising another part and in this way giving the second part some advantage in terms of the market. Surely this, if it were to happen, would only give a temporary advantage—a long purse advantage, as the jargon calls it—to the second part and even if it drove its competitors out of business, in these circumstances, as soon as it ceased to be subsidised in this way, new competitors would come in again.

Mr. Dell

But that would be a very long process and considerable damage would have been done to the public interest in the interval.

The hon. Member for Horsham (Mr. Hordern) suggested that, when the size criterion was put into the Monopolies and Mergers Act, 1965, no one remotely considered that questions of efficiency might be referred to the commission. I do not think that that was the case because, in our monopolies legislation since the beginning, in 1948, questions of efficiency—admittedly within a monopolies context—have been involved. In Section 14 of the 1948 Act many questions involving efficiency were specified as being related to the public interest.

Equally, within the March, 1964, White Paper, which was published by right hon. Gentlemen opposite, again admittedly within the context of a monopoly situation, questions of efficiency were introduced as being related to the public interest. Paragraph 24 of that White Paper said: The Government contemplate directing the Commission's attention to certain considerations to which it should have regard in particular cases in assessing where the public interest lay. They have in mind such consideraions as efficiency, technical and technological advance, industrial growth and competitive power in international trade ". What I do not understand in the argument of right hon. Gentlemen opposite is why these questions of efficiency and questions relating to our export trade and to the efficiency of supply in the home and export markets have to be confined to a monopoly situation. I should have thought that these questions were relevant whenever one was considering the use of large quantities of national resources.

Mr. Hordern

The hon. Gentleman has specifically said that in the White Paper this question arose only in the case of a monopoly situation. In this case it does not apply, because the merger would not have led to a monopoly situation, and the report does not claim that it would. Surely the position ought to be that where competition is allowed and is seen to be practised there should be no interference by the Monopolies Commission or the Government in preventing that competition from obtaining. But it is perfectly allowable if the monopoly situation exists, when the Government have a perfect right to see that the criterion of efficiency is properly considered.

Mr. Dell

The hon. Gentleman has repeated his point of view rather than replied to mine. When one is concerned with the use of large quantities of resources, I cannot see why these questions, which are clearly related to the public interest in a monopoly situation, are not equally relevant to the consideration of the public interest in that merger.

Sir K. Joseph

The answer is that if there is no monopoly situation, market competition will see that efficiency prevails. There is no need for a tribunal if competition and the market operate. We acknowledge that there is a need for a tribunal in a monopoly situation.

Mr. Dell

That would be perfectly true if one could rely in every case—I grant that one can in most cases—on size not detracting from the competitiveness of the situation. I gave the example of the transfer of resources within a company in which size itself could affect the competitiveness of the situation.

I conclude this point by saying that conglomerate mergers are not necessarily bad; on the contrary, they have advantages. But the Monopolies Commission's conclusion seems to be right. It is in essence that while there are dangers which should be closely watched by the Government and the stock market, they should not dispose the Government against conglomerates and against the creation of organisations of great size. That is the view of the Government and I think that it is the right view.

The second question I was asked was why this merger should not be judged against the normal criterion by which these mergers are decided, the criterion of the market. The right hon. Gentleman said that we had accepted the criterion of the market in virtually every case; that of all the mergers which had come before us since the Monopolies and Mergers Act, 1965, about 400, only 12 had been referred—or perhaps 13 today—and that of those the commission had rejected four. In other words, the mergers had been decided by the criterion of the market.

The right hon. Gentleman paid tribute to my right hon. Friend, then President of the Board of Trade, for having allowed the market to determine the results in all these mergers. I will convey the tribute to him, although I do not think that he had to stand up against the pressure which the right hon. Gentleman suggested. As the right hon. Gentleman himself said, the Government have done quite a bit to encourage mergers. We accept the market as a fairly efficient mechanism in most cases. Indeed, quite apart from anything else, practicality dictates that the large majority of judgments of this kind must be left to the market.

But it is too great an expression of faith to believe that in all circumstances other than monopoly the market will be the best judge and that detailed examination of the case with access to information from both sides cannot do it better. Therefore, where the public interest appears to be involved to any significant extent, it is right to make a reference.

The fact is that the market lacks information. Indeed, the company proposing to take over another company may lack information. The right hon. Gentleman has argued, and I agree, that we need more information about the existing situation. Much of the additional information which we need is not available. The Companies Act, 1967, has not satisfied the demand for additional information about the activities of companies, the demand which exists not just for additional information but for more scientific analyses of the information which is available.

It must therefore be accepted that the market lacks information, information of an interesting kind, because it is the information which right hon. Gentlemen opposite themselves suggest can be made available and presumably, therefore, could be made available as the result of an inquiry by a body such as the Monopolies Commission.

Mr. Hordern

However, would not the hon. Gentleman agree that even if the information were readily divulged, as it was to the Monopolies Commission in this case, the assessment of that information can be imperfect? Would he address himself to this point? Why was it strictly necessary for the Government to lay the order? The position has greatly changed since the matter was originally considered by the Monopolies Commission. If the board of Ranks wished to go ahead with the take-over, to make a bid for De La Rue, it would have been perfectly entitled to do so if the Statutory Instrument had not been laid. Why do not the Government allow it to do so?

Mr. Speaker

The hon. Gentleman has already made one long intervention which was practically a second speech; interventions must be brief.

Mr. Dell

The hon. Gentleman asks me why we are now preventing this merger from going forward in what he says are changed circumstances. I intended to come to that. At this point I merely say that it is not an unusual experience in my reading of company reports to learn of chairmen who have carried through take-overs and are explaining to their shareholders that the situation has turned out to be much worse than they expected and that the profits of their company—and, therefore, their use of national resources—have suffered as a result.

One of the interesting things in this report and one answer to what the hon. Gentleman said about the report having been undermined by the De La Rue results, which have been made public in the last few days, is that in paragraph 105 of its report the Monopolies Commission said that in its view Rank was underestimating the difficulties in which it would get involved in this merger. I suspect that this is something which chairmen of companies of ten do.

Therefore, it is wrong to say that the market has all the necessary information, or is in a better situation to have the necessary information than is a body specially appointed to inquire into this sort of situation. I admit that we allow the operation of the market to settle virtually all cases, but I have seen mergers, and the right hon. Gentleman has probably seen them in more detail, when the market has permitted what has consisted of one company running into the arms of another out of the embrace of a third, in a situation in which it was clear to any independent observer that it was the third which would have created the more efficient total company. That is something which the market allows, and all I am suggesting is that there is merit where the public interest is involved, but only where the public interest is involved, in having an independent body which investigates these matters.

There is one further interesting point on the operations of the market. We are not here discussing the Allied Breweries/ Unilever merger, but the market made two distinct judgments of the prospects of that merger at an interval of about five or six months. Had the merger taken place it would have committed the long-term resources of those two companies. At one point the market decided that it would be a good thing, and later decided that it would not.

Mr. Speaker

We must come back to this particular merger.

Sir K. Joseph

Had the then President of the Board of Trade not delayed his decision for eight or 12 weeks, quite different events might have supervened.

Mr. Dell

The right hon. Gentleman may or may not be right. That would introduce the possibility of yet a third attitude of the market in relation to the same merger.

The third point on which I should like to comment is that made by the hon. Member for Horsham on the argument in paragraph 60 of the report dealing with the attitude of the management of De La Rue. It was not just the Monopolies Commission or De La Rue that placed emphasis on the importance of management; Ranks placed importance on obtaining the management of the company. Paragraph 40 of the report quotes Rank's own words: In making a bid for De La Rue, the Rank Organisation sought to acquire with its existing management a company …> Rank also regarded this question as important, and, therefore, on the base of Rank's own statement of position, this was a legitimate aspect for the Monopolies Commission to concern itself with.

I would have thought that if there is any area in which it is important to get management it is in a conglomerate merger, because a conglomerate merger, by definition, is a type of merger in respect of the future prospects of which and in respect of the type of management of which the taking over company has less experience than it has in horizontal or possibly vertical mergers. This, then, is a vital point which it was legitimate for the Monopolies Commission to take into account. In taking it into account, I would have thought that the commission was influenced not just by the poll but by its contact with De La Rue over the full period of its investigations, and I think that both sides of the House could concede the following points.

First, this was a particularly strong panel of the Monopolies Commission. Second, Mr. Roger Falk and Sir Hugh Tett, who dealt with this problem, are not unaware of the dangers in allowing management to veto mergers. They would have been perfectly well aware of the existence of such dangers; yet they decided that those dangers were to be balanced against even greater dangers on the other side.

This does not mean that it is the view either of the Government or of the Monopolies Commission that executives should be allowed to veto all mergers in all cases. Executives of the company are important, but the problems of a merger and the influence of the executives in a particular company on a merger have to be decided on the merits of each case. In this case the position of the executives was par ticularly critical and it is not necessarily a precedent for other cases.

I hope that I have dealt with the points raised by the right hon. Gentleman and the hon. Gentleman and that the House will approve the order.

Question put and agreed to. Resolved,

That the Restriction of Merger Order 1969 (S.I., 1969, No. 1134), dated 6th August 1969, a copy of which was laid before this House on 11th August, in the last Session of Parliament, be approved.