§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Alan Howarth.]5.29 am
§ Mr. John Greenway (Ryedale)
I doubt whether there can have been many occasions in recent years when an hon. Member who has been lucky enough to raise an issue on the Adjournment for the first time has had such a large and supportive audience, has chosen to discuss a subject that has dominated the day's national news, has had to wait such a long time and has witnessed such bizarre scenes while preparing for the debate. I apologise to my hon. Friend the Under-Secretary of State for Corporate Affairs for the fact that he has had to stay up all night. I hope he will find, after my speech, that it has been worth while.
As the House knows, early today my right hon. and noble Friend the Secretary of State for Trade and Industry announced that, following advice from the Director General of Fair Trading, Sir Gordon Borrie, there were, in his view, no grounds for the Government to intervene in the Nestle bid and the 29.9 per cent. Suchard interest in Rowntree, and that he would not therefore refer the matter to the Monopolies and Mergers Commission.
This decision is a cause of deep regret to many of my constituents and to many people in Yorkshire and the rest of the country. It is also a matter of considerable regret to me that I find myself so greatly at odds with my right hon. and noble Friend, for whom I have such great admiration.
I and my hon. Friends, whose support this morning I much appreciate, find it difficult to accept that there is no Case for referring the Rowntree issue to the MMC on grounds of lack of reciprocity. In his speech to the Retail Consortium early this morning, the Secretary of State admitted that the London stock exchange would not accept the restrictive approach of Swiss companies.
I ask the House to consider the following points. Foreign companies cannot take over listed Swiss companies. Practically no Swiss-quoted companies have been acquired by non-Swiss companies of any nationality in recent years. No quoted Swiss companies have been the subject of hostile takeovers in recent years by predators of even Swiss nationality—let alone by United Kingdom or European ones.
Quoted Swiss companies can defend themselves in a way that is not possible for United Kingdom-listed companies. They can simply refuse to register the shares acquired by an unwelcome shareholder. United Kingdom stock exchange rules prevent a United Kingdom company from taking such defensive action. Almost all quoted Swiss companies do not allow non-Swiss shareholders to be registered with significant shareholdings. With rules enforced by Swiss banks, the main stockbrokers in Switzerland, these companies have adopted anti-foreign shareholder policies which allow them to refuse to sell registered shares in these companies to foreigners.
Early today the Secretary of State suggested thatnothing in our law prevents a company, with the consent of its shareholders, making it virtually impossible to have a hostile takeover.He mentioned several companies that have ended up in that position.
But the Secretary of State must know that these companies are in the minority; they are very much the exception. In most cases their rules were formulated under 494 original private ownership and no major United Kingdom company would have a realistic chance of persuading the financial institutions to underwrite share issues on Swiss terms. But that is not all. The real point that the Secretary of State has not answered is that to which I have already referred: Swiss companies can refuse to register shares. Reciprocity is not so much about voting rights as about transferability. Public companies in the United Kingdom cannot refuse to register; in Switzerland the right of refusal to register is the everyday creed.
The DTI Blue Paper on mergers policy, published only two months ago, states in paragraph 2.26:There are instances in which foreign ownership of a UK company may raise particular concerns, and in such cases the power to make a reference to the MMC is available for use. One consideration that may be relevant in some cases is the extent to which UK companies have reciprocal freedom to acquire companies based in the home country of the prospective acquirer.If ever there was a case for a reference on grounds of lack of reciprocity, the Swiss interest in Rowntree is it. Perhaps my hon. Friend can tell the House which other cases or circumstances the Government had in mind when drafting that recommendation.
The attitude of the Swiss Government towards those matters also deserves further scrutiny and consideration. The Secretary of State confirmed earlier today that,at that level—government intervention—there are no barriers to British firms taking over Swiss firms.It is my understanding that, on 23 February 1983, the Federal Government of Switzerland recommended changes in Swiss company law which supported the proposition that the board of a Swiss company should be free to refuse to register foreigners as registered shareholders. I understand that those recommendations and concerns about the protectionist position the Swiss firms have led the Federal Government to promulgate a review of the regulations. That surely shows that the Swiss authorities may well have intervened.
Referral of the Nestlé bid to the Monopolies and Mergers Commission, as my right hon. Friend the Member for Selby (Mr. Alison) suggested earlier today, would have sent a very clear signal to the Swiss authorities that the protectionist regimes of the public quoted companies in Switzerland are not acceptable. It is a lost opportunity to create the pressure needed to even out the ground rules. I am not alone in taking that view. On 11 May, my right hon. and learned Friend the Foreign Secretary told the Swiss GovernmentSwiss companies expect to make takeovers in our market. Their Government must ensure British firms can make takeovers in theirs. We want the single market to be an open market. But if the away teams are going to play on a level pitch when they come to the Community we shall want to see them levelling their pitch too for the return match.As it is, by not referring the Rowntree issue to the MMC, the Secretary of State has sent a signal to the Swiss not to mend their ways, but to prepare for more predatory takeovers. Other non-EEC-based companies will have felt encouraged to take similar action.
It does not require much imagination to envisage that Nestlé or Suchard, having lost the battle for Rowntree, might then bid successfully for Cadbury. How could the United Kingdom Government or the European Commission prevent a future Nestlé-Rowntree and then Suchard-Cadbury merger? By that means, we could yet pass from six major confectionery companies in Europe at 495 present down to five, then quickly to four and even then to three, all outside the control of either this Government or the European Commission.
After confectionery firms, what else may be at risk? The issue has certainly exposed opportunities for other major takeovers. The food and drinks industries look vulnerable, as much comment in the media yesterday has suggested and has been reflected in share price movements. In my own profession, insurance, which has always been international in outlook, fears are being expressed and, without any intervention by or approach from me, representations were made on news of this debate that the leading position of major United Kingdom insurers to take advantage of the opportunities of 1992 has been fully recognised abroad. Those issues must be reviewed urgently. The Leisner review did not address them. A referral of the Rowntree issue would have been the ideal opportunity to do so.
I fully recognise and appreciate the tremendous benefits that inward instment and acquisitions overseas are playing in the spectacular recovery of the United Kingdom economy. It is a recovery which only the policies that this Government have pursued could have brought about, but there are occasions when the questions raised are sufficiently important to warrant consideration of other interests without running the risks of damaging other investment opportunities. That must be why the policy on mergers provides the opportunity for referral on grounds other than competition.
I share my right hon. and noble Friend's belief that stock markets are better judges of the viability of mergers than Governments and politicians, but, as my hon. Friend the Member for Boothferry (Mr. Davis) outlined so clearly in an article in The Guardian yesterday, to work for the public good, capital markets must be efficient. Therein lies the virtue and importance of reciprocity. Any company which is the subject of a bid from a less efficient company can counter-bid or look to a white knight to do so. Investor interest will always bring the efficient company out on top, but this option is not open to Rowntree. If the control of Rowntree is lost to Switzerland, it will be lost for ever. That is surely the acid test of riciprocity.
Throughout the country the advertising hoardings show Sir John Harvey-Jones, the former chairman of ICI, declaring of 1992:History is in the making.Those words have a hollow ring about them in York this morning. Is it too late? Can Rowntree be saved? The Rowntree board must decide how to respond to the Nestle and Suchard interest and attempt to convince shareholders of its arguments. That is the board's job and it must do that.
However, the Secretary of State for Trade and Industry could yet intervene. The Suchard bid, which it has announced it will launch shortly, must now be considered by the Office of Fair Trading. Unlike Nestle, Suchard has no factories in the United Kingdom and no history of investment here. As a consequence, it has no employees in the United Kingdom. Suchard is under private control. On both national interest and reciprocity grounds, the Suchard bid sould be considered by the Monopolies and Mergers Commission. I urge the Secretary of State to make such a reference.
§ Mr. Conal Gregory (York)
I congratulate my hon. Friend the Member for Ryedale (Mr. Greenway) on securing this debate. It is most timely for the House to consider the matter further Even at this late hour, I welcome the continued support of my hon. Friend the Member for Pudsey (Sir G. Shaw) and my right hon. Friend the Member for Selby (Mr. Alison) who have joined us on this occasion.
In recent years Rowntree has nurtured a European seed. Its brands in mainland Europe are successful and gaining momentum. We should consider that background as we build towards 1992. Now a Swiss predator has threatened that European drive and determination. Although Rowntree is well placed for the magic date of 1992, it cannot effectively stop a hostile bid from a non-European Community company.
At this stage, I should ask several questions related to reciprocity. The Rowntree case shows the probability that successful British companies well prepared for 1992 will become the targets of foreign companies that are less well prepared. We have seen and are seeing a struggle for a major confectionery company. A pharmaceutical company may be next.
It is true that red tape is being cut away, but at the same time my right hon. and noble Friend the Secretary of State for Trade and Industry is showing the green light for takeovers. That trend will be reinforced because aggressive bidders know that they are unlikely to see successful British companies ripe to be plucked elsewhere in the European Community.
If we follow the analogy used by my hon. Friend the Member for Ryedale, and if the bid from the Swiss predator is successful and the American bid for Cadbury succeeds, some 80 per cent. of the United Kingdom confectionery industry will be taken out of European Community hands. The Swiss are likely to be particularly aggressive because of their concern about exclusion from the European Community, but they will continue to protect their own companies from aggressive purchase by foreigners.
Our cri de coeur is that the Swiss are not playing cricket. They are not playing at fair and free competition. We want the freedom of the skies in Europe and freedom in manufacturing industry. We also want fairness and that is not contained in the Government's policy.
When my hon. Friend the Under-Secretary of State for Corporate Affairs replies, I hope that he will tell us where Britain stands with regard to its mergers policy. Why is the United Kingdom, together with France, delaying signing the European Community directive? If that had been signed, the European Commission could have intervened in the past week. How seriously does my right hon. and noble Friend consider the lack of reciprocity? I have yet to hear of any one from Britain or elsewhere in the European Community being successful at buying into a Swiss company.
We must have answers to these points and to the matter of the referral to the Monopolies and Mergers Commission because that has an employment aspect in Britain.
§ Mr. Michael Alison (Selby)
I am obliged to my hon. Friend the Member for Ryedale (Mr. Greenway) for 497 allowing me to take up some of the precious time of his Adjournment debate to speak in support of Rowntree on behalf of the many Rowntree employees who live in Selby.
I believe that it is perverse, if not inept, for the Government to advocate strongly open markets as the best means of encouraging efficiency and jobs in Britain—the Secretary of State advocated that today. The Government then recognised, however, that Swiss companies tend to be more restrictive than ours. They further recognised that Swiss companies appear to be wavering slightly on open markets—we believe that that attitude scarcely serves the Swiss economy well.
The Government have not followed the logic of their argument, however, and they have not exacted a penalty for that waywardness by closing the doors on Nestle until the Swiss open their doors to us. Such a contradictory attitude on the part of our Government is unsatisfactory.
I fear that the restrictive Swiss, of whom we all disapprove in this context, will be the beneficiaries and the free-trading Britons will be the losers. That is the paradox. Above all, Rowntree will be the victim of the Government's error of judgment.
I hope that the Minister will take to heart the alternative route forward—for which my hon. Friend the Member for Ryedale eloquently argued—and, even at this late hour, give Rowntree a second chance.
§ Sir Giles Shaw (Pudsey)
I am grateful to my hon. Friend the Member for Ryedale (Mr. Greenway) for allowing me to make a brief contribution to the debate. I must declare an interest as a past employee of 18 years' standing in Rowntree.
I cannot accept that national issues are not connected with the bid and I believe that they should be addressed. A mechanism for redress has not been used—that is, the rapid progress that has now been made in providing advice from the Monopolies and Mergers Commission. Such advice is now available within three months.
There are three issues at stake. First, I find it extraordinary that a company can make a bid of 14.9 per cent. and an offer for Rowntree of £2.1 billion. That offer immediately releases the bid of 14.9 per cent. up to 30 per cent. Rowntree is unable to defend itself under stock exchange regulations because it cannot provide the bid document from Nestle and is therefore unable to offer a full defence. That cannot be right or fair.
Secondly, I do not understand why it is believed that the European dimension has been included in the assessments made by my right hon. and noble Friend the Secretary of State. We know nothing about it. What is the European dimension? It should be publicised and we should know how it works.
Thirdly, the public are most confused about our monopolies and mergers policy. They do not understand it. They believe that that mechanism should be used from time to time. They do not understand why it is not used in many of the operations considered by the Department of Trade and Industry. The rarity of its use is the wrong way to go about things.
498 We should have a clear signalling system, which would not worry capital flows, but would merely make it obvious that, from time to time, Britain has a populist, nationalist case to argue. That case should be argued in the House.
§ The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Francis Maude)
I understand the anxiety that is felt by my right hon. and hon. Friends. Rowntree has been a topical subject for a month or more. It was timely, in terms of dates, for my hon. Friend the Member for Ryedale (Mr. Greenway) to draw the Adjournment debate tonight, although it has not proved timely in terms of the hour of the debate. It gives us the opportunity, however, to consider some of the wider aspects connected with the bid and with the decision that my right hon. and noble Friend announced yesterday morning.
My hon. Friend the Member for Pudsey (Sir G. Shaw) raised specific questions with which I shall deal first. He mentioned stock exchange rules, which he feels have prejudiced Rowntree's position. I shall look at the point he raised and consider whether there are things to be done. He says that we ought to make clearer our policy on mergers. We have done so in a Blue Paper that we published two months ago.
My hon. Friend says that we should be more ready to use the tool of a reference to the Monopolies and Mergers Commission. Every year in the United Kingdom there are hundreds of mergers that qualify for reference under the asset test or the market share test. A tiny proportion of those mergers are referred for a full inquiry. That proportion has not become more tiny under my right hon. and noble Friend's regime. We are not slow to make a reference when there is a clear public interest in doing so, and a number of recent cases illustrate that.
I have to say to my right hon. Friend the Member for Selby (Mr. Alison) that a reference to the Monopolies and Mergers Commission is not to be used as a penalty against a company making a bid. It is to be used to inquire whether the public interest is adversely affected. Unless there is a possibility of an adverse public interest finding, it would be cynical for us simply to meet a populist demand. If a properly funded case is made, it has been shown that we are not slow to respond, but, in the absence of a case being fully made, it would be cynical to use a major tool of competition policy in that way.
The decision that my right hon. and noble Friend made and announced earlier does not by any means mean that the die is cast and that Nestlé will necessarily take over Rowntree nor that by his decision my right hon. and noble Friend is voicing any preference about the future ownership of Rowntree. His decision means only that there are no grounds for intervention in the proper working of the market in this case. It is now up to the Rowntree shareholders, as it has been throughout from the launching of the bid, to make their own decision whether to accept an offer in the light of future market developments. That decision is made entirely in accordance with the Government's policy on mergers, restated in the Blue Paper earlier this year.
I turn to the issue that my hon. Friend the Member for Ryedale mentioned at the outset, the Suchard bid for Rowntree. As he asserts, Sir Gordon Borrie will consider it and advise my right hon. and noble Friend. None of my 499 hon. Friends will expect me to give a preview either of what that advice will be—because I cannot possibly know—or of what my right hon. and noble Friend's decision will be following that. The proper statutory procedures will have to be followed and we shall have to wait and see.
There were no competition issues, and no one seriously has suggested that there are. The market shares, even after a successful bid for Rowntree by Nestle, would not be such as to cause anxiety from that point of view. The case has rested on reciprocity, which at first glance is an appealing concept. It seems unfair to us that companies in other countries which have protected, bid-proof share structures should be able to buy shares in our companies on the open market with no form of counter-action available to UK companies. Our sense of fair play, of playing the game, of our playing cricket while others do not, is offended. It is easy to see why, but the reality is rather more complex.
Under Swiss law there are no powers for the Swiss or foreigners to block takeovers of industrial companies. So, at the level of Government intervention, there are no barriers to British firms taking over Swiss firms. Indeed, in terms of legal powers, the United Kingdom barriers are higher. As has been pointed out, Swiss companies may make themselves proof against unwelcome takeovers, whether by Swiss or foreign companies—as my hon. Friend was fair enough to point out—by restrictions on certain types of shareholding.
Equally, there is nothing in United Kingdom company law that prevents a company, with the consent of its shareholders, from making a similar arrangement. There are many British public and quoted companies having differential share structures which make it difficult for takeovers effectively to be mounted. Those are not just accidents of history. Only this month Sotheby's issued shares which represented 25 per cent. of the company's capital but only 3 per cent. of its voting rights.
Companies do not even need to go to those lengths. There are many other companies in this country which are proof against takeovers—the large mutual institutions, building societies and private companies are not quoted—and many public companies have large blocks of shares held in family hands. That also makes them, by the nature of their share structure, proof against hostile takeovers.
There are two points in particular that I wish to make. First, the issue of reciprocity has become synonymous with foreign takeovers of United Kingdom companies and the possibility, or not, of the converse. Much has been made of the foreign nature of Nestlé as a bidding company. However, we must remember that Nestlé has been manufacturing in the United Kingdom for more than 120 500 years. It employs more people in the United Kingdom than it does in Switzerland. Its product range includes such "foreign" products as Carnation milk and Branston pickle. The idea that Nestle is a company charging in from outside with no knowledge of the British market is plainly absurd.
In general, in the case of Switzerland and of other countries—such as Germany, which has restrictive share structures—to think of reciprocity as something that arises only in the foreign context is to misconstrue the facts. Swiss companies are often structured to protect themselves against any form of hostile takeover, whether domestic or foreign. In other words, those arrangements are just as applicable to Swiss predators as they are to foreign ones.
Secondly, both the Swiss and United Kingdom systems of structuring companies are rooted in culture rather than in law. Both Swiss and United Kingdom company law is essentially permissive, allowing companies to structure themselves as they see fit. We have opted for an open stock market that allows for contested bids, but the Swiss culture is different. It gives greater emphasis to companies being able to protect themselves from hostile bids. However, foreign takeovers of Swiss companies do occur, but only on a friendly basis. We simply look differently at mergers.
We believe that the United Kingdom systems brings us considerable benefits. My hon. Friend pointed out that there is considerable public debate in Switzerland about whether the system which that country has followed brings the greatest benefits. The fact that the Swiss are re-examining that aspect suggests that there are doubts about it. It is for each country to pursue its internal policy. We have made a judgment that our system serves our national interest best, and I have no doubt that that judgment is fundamentally correct.
The question of the single European market in 1992 has been raised. How should we approach it? We say that the competition authorities must judge in the first instance what is the market that is applicable. Is it a local market, a regional market, a national market, or an international market? We must consider what are the market shares, what will be the ease of entry, and how that will affect the issues of competition. Those aspects were considerd in this case as in any other. We must make sure that we maintain our open markets. They have brought us great benefits and I have no doubt that they will continue to do so in the future.
§ Question put and agreed to.
§ Adjourned accordingly at two minutes to Six o'clock on Thursday 26 May.