§ 6.9 p.m.
§ LORD MESTON rose to ask Her Majesty's Government whether they will consider introducing legislation for the purpose of dealing with the situation which arises when take-over bids are made for undertakings; and to move for Papers. The noble Lord said: My Lords, I rise to move the Motion which stands in my name. I should like at the outset to make two preliminary observations. In the first place, there is no criticism at all of the Stock Exchange. As your Lordships know, the Stock Exchange is one of the most honest institutions in the world. It exists only for the purpose of providing a free market in the exchange of stocks and shares and other commodities, and therefore I wish to say nothing which reflects in any way on the practice of the Stock Exchange or the integrity of its members.
§ The second observation I would make is that, speaking subject to correction, I understand that there is nothing illegal about a take-over bid, and therefore I am not for a moment suggesting that there has been any illegality in any of the takeover bids which have already taken place. While I am making these preliminary observations I might make a third. The take-over bids to which I am going to refer apply not only to public companies but also to some private companies. As your Lordships know, some private companies are very big concerns and, without mentioning any names, I happen to know one very large company which at the present time is the subject of a somewhat embarrassing financial operation.
§ There is no definition of a take-over bid, but we all know what it means: broadly speaking, any acquisition of control of a company through the purchase of its shares by an outsider is a bid. The control of a company is taken over by such a bid. The motives of a bidder are always interesting. A bidder may obtain control of a company simply from a desire 1178 for power or ultimate gain, or he may operate in this fashion in order to enlarge the activities of another company of which he is a director and virtual owner. In a great number of cases there is no objection whatsoever to a take-over bid. It may happen, for example, that a person who is already a director and shareholder in a company may acquire a controlling interest in the same company and so become the virtual owner of the undertaking. That may raise personal objections in the company, but so far as the public are concerned they are not really interested.
§ On the other hand, when an outsider—that is to say, a person who is neither a director nor a shareholder in a company—acquires a majority or controlling interest in the shares of that company, different considerations may arise. The public may become alarmed at a person obtaining control of a company about whose business he knows nothing or cares less. In order to obtain control of a company the take-over bidder must acquire a majority of those shares with voting rights. This involves offering the shareholders, for their shares, a sum of money in excess, and frequently substantially in excess, of the existing market value of the shares.
§ The techniques employed by the takeover bidder may be and probably are better known to many of your Lordships than to myself, and may vary according to circumstances. The following is a very simple example. The bidder finds out who holds the shares of the company. He starts operations by buying some of the company's shares, not in his own name but in that of a nominee. He will be careful to buy a comparatively small number of shares so as not to drive up the price of the shares suddenly and thereby cause bid rumours to circulate. Let me say at once that the serpent in the Garden of Eden was an amateur compared with some of these financial snakes who pound their way into the compound. The bidder then contacts the board of directors of the company with an offer for the ordinary shares.
§ Suppose the market value of the shares is 20s. The offer may be in the region of 30s. per share. The board of directors may react favourably or otherwise to this proposal. At all events, the bidder cannot stand still, and after a few days he sends out his formal offer. This states 1179 the price he is bidding and any relevant details about the future of the business. The offer will also announce the date by which acceptances must be received by the bidder. The usual stipulation is 90 per cent. acceptances or such lesser proportion as the bidder is willing to accept. The acceptances may come in gaily and the directors may recommend acceptance of the offer made by the bidder. Then all is plain sailing.
§ On the other hand, the directors may strongly oppose the efforts of the bidder to obtain control of the company. In that case the bidder will have to go over the heads of the directors—and then the trouble starts. Somebody has said that then all the Scotsmen, like myself, appear on the scene, some with bagpipes, some without—mostly without. As your Lordships know, in some of these cases there is not merely one take-over bidder but several, all seeking to find favour with the shareholders of the doomed company. The effect upon the market value of the shares may be phenomenal. It is no exaggeration to say that a share marked at, say, 30s. may soon be marked at 60s. People "in the know"—of whom I am never one—buy at 30s. and sell at 60s. People not "in the know"—like myself—buy at 60s. expecting a further phenomenal rise and then perhaps the take-over bid does not come off and they sell out eventually at about 20s.
§ I would point out to your Lordships that all that is perfectly legitimate. There is no legal objection whatsoever to it. People sometimes say that take-over bids stimulate the directors of a company to declare higher dividends. I cannot stop people talking nonsense; I do that myself sometimes. There is no law against it; but of all the nonsensical observations, that is the most foolish I have ever heard. The declaration of dividends must surely proceed along somewhat conventional lines. The directors look at the existing profits of the company and its assets and future prospects. Having deducted interest on debentures and other fixed charges, and placed so much to reserve, a sum of money may remain available for dividend. To apply artificial stimulation by means of a threatened take-over bid cannot, in my submission, be in the real interests of the shareholders, the company or industry generally.1180
§ There is another extremely delicate matter which I wish to mention. As a result of a take-over bid the control of a company registered and situate in Great Britain may pass, entirely or substantially, into the hands of persons of other nationality. There is nothing immoral in this happening, but it is a matter which comes to mind when discussing this subject. Should anything be done about the matter? Some people say take-over bids are somewhat robust financial operations but are perfectly legal and should not be touched in any way. I am a psychologist; I can see into the bosom of Her Majesty's Government, and that is what they are going to say to me to-day.
§ On the other hand there are people, including myself, who say that a take-over bid may—and I emphasise the word may"—in certain circumstances not be in the interest of the shareholders or of industry generally. I am merely here to make a suggestion and no more. My suggestion is that the appropriate Government Department—that is to say, the Treasury or the Board of Trade—should be entitled, on application made to them by an interested party, to suspend transactions in the ordinary shares of a certain company for a period of, say, three months unless permission is given by the Government Department.
§ I am not for one moment suggesting that there should ever be any absolute suspension. There must always be some transfer of shares in a company, to pay death duties, if for no other reason. A suspension of three months would enable shareholders to find out who the takeover bidder really was. The identity of the take-over bidder may, of course, be apparent from the word "Go". On the other hand, the real take-over bidder may be up in the Highlands and the apparent take-over bidder down in London. Shareholders would then have time to form a proper opinion as to whether the take-over bid was really in their interests. That is all I have to say on this subject. I am particularly anxious to ascertain what is the Government's view of the matter; and I am sorry to say that they are going to say that nothing will be done. I beg to move for Papers.
§ 6.20 p.m.
§ LORD SHACKLETON
My Lords, we are grateful to the noble Lord who brought up this extremely complicated 1181 question. I only wish I could think that the solution that he has proposed for this problem would solve it. In the course of the few remarks I have to make I do not intend to suggest for one moment that there is any immediate solution; I do not believe there is. Nor should I think that any noble Lords would want to go on record as suggesting that there is any real alternative in the system in which we live (and this is not an occasion to suggest that we change the capitalist system in any very marked degree), for the progress of industry, to the process, in many highly desirable instances, of the take-over bid.
I do not think we can pursue too actively to-day the very special position of the private company. I would say that in certain circumstances one of the most objectionable of all actions could be the take-over bid in the private company, because the position of its shareholders tends to be much weaker than that of shareholders in a public company. But I am concerned now mainly with some of the recent events that have over the past few years caused a good deal of controversy and a great deal of adverse comment in the public Press and among leaders of industry, and particularly leaders of commerce. Clearly, the build-up of industry will, to a large extent, take place by amalgamations, and again I would repeat that I am not myself attempting to suggest that this is not highly desirable in many cases. But there are some examples where there are very undesirable consequences, and the general effect is apt to be such that I should hope that some action would be taken to look into the subject.
The objectionable instances are where a take-over bid takes place, if not solely for what might be called financial reasons—and I should not attempt to define those—then when the main purpose is the quick profit. A number of industrial and commercial leaders have drawn attention to this as being an undesirable development. I do not propose to mention many cases, but there is no doubt, I think, that the public and public commentators have been considerably worried by certain of the developments that we have read about—and I would say, of course, straight away, that all noble Lords will be aware of the considerable anxiety that was expressed over the take-over of the British Aluminium Company.
1182 I should like to look at this question from the point of view of the individual director, the individual manager and the individual employee. I have myself been in the position—and this comes back to the small private company where I think this practice is so objectionable—of a director faced by a take-over bid. The pressure that can be brought on a director in those circumstances, in terms of his own security, can be enough to distort his judgment—I say no more—as to what is his duty to the shareholders. Then there is the position of the manager. We have all been at great pains in all political Parties to emphasise the importance of managerial efficiency and to build up the position of the manager who is concentrating on raising productivity. Suddenly a take-over bid appears on the scene, or there is a rumour. The effect on morale, on the status and on the understanding of the importance of his work needs little imagination for us to realise.
Finally, there is the position of the worker. It is, I think—I hope—common ground between us that the directors of a large private enterprise owe a duty which goes beyond that of their duty to their shareholders. I am not arguing that the primary obligation of most companies is not to conduct their company at a profit; but they have an obligation, which they recognise; and the obligation which is recognised by the enlightened management to their employees and those who work in their company is that they, like the public, have an interest in that company.
We have seen recent examples in which companies have been sold and the employees literally sold with them, without any guarantee or without any protection of their rights. I happen to be myself—and this is fortunate, and has no reference to my earlier experience—a director of a large undertaking employing 12,000 people where no take-over bid is possible, because no part of that company greater than 5 per cent. can be disposed of at any one time without the consent of the workers. It is a rather unusual organisation and not typical, but I should like very much to see whether it would not be possible to provide some sort of protection of and opportunity for consultation with the employees in a business as to what their own interests and their own 1183 future should be. To this extent, the proposal of the noble Lord, Lord Meston, that there should be some opportunity for delay in such circumstances, some opportunity in which the opinion of the shareholders and the workers alike could be obtained, would be a valuable step forward.
I have one final criticism. In the debate last night, the noble Viscount, Lord Hailsham, in one of the more moderate passages of his speech, stated that one of the reasons (and I hope I am not misquoting him) or causes for the present economic situation and degree of unemployment has been the refusal of trade unions to practise wage restraint or to answer the appeals of the Chancellor of the Exchequer for wage restraint. It is the atmosphere of the quick profit; it is the atmosphere in which in the negotiations over the Savoy Hotel deal a profit was made, an estimated capital gain, of £200,000 or £300,000 by one of the participants who, in the end, did not himself take over that particular undertaking, which is to blame. It was that particular atmosphere and these particular bits of information which have been so destructive and so fatal to any attempts to achieve wage restraint in this country; and I would urge the Government to consider very seriously just how demoralising this sort of development and this sort of practice is.
It is part of the belief that there are easy ways of making money. It is part of the belief that there is a way in which riches, great riches, can be obtained without effort. I know that there are many replies that noble Lords might think of about the pools and so on; and I do not propose to go into that rather dangerous territory. But I would argue, quite sincerely, and without any very constructive proposal, I fear, that these developments are undesirable. They are the type of action which in its extreme form is liable to bring in the end extreme remedies. It is liable to increase very strongly the case for a capital gains tax, which it would be inappropriate to argue. Therefore, I ask Her Majesty's Government to give very serious consideration to the proposal of the noble Lord, Lord Meston. I, no more than he, expect them to accept it; but it would be very pleasant to hear them say that they would consider it and, even 1184 more, would consider setting up an inquiry, which has been urged on previous occasions and was not unacceptable to the more responsible leaders of commerce and industry.
§ 6.30 p.m.
My Lords, I should like to say one word about one remark only that Lord Meston made. I understood him to say that one of the objections to take-over bids was that foreign capital might get control of British companies. What I want to ask is: what is the objection to foreign capital and foreign management coming into this country? Should we not welcome it? The point is not who manages the company, but who does the work; and if we can get into this country developments from other countries, and if the work and the production are done here, then let us welcome them, not question the fact that it is foreign management.
May I mention one instance, of which I am aware? The noble Earl who is to reply will know to what I refer, but I will not mention any names. There is one large company in my neighbourhood, in a big town nearby, which has set up an industry developed in another country, in America. It has trained thousands of local employees—and it has spent very large sums on capital development. This company now makes the product that it set out to make, and sells it in its own country, in competition with their productions. British goods, made in Britain, are now sold by the American management in their own country, in competition with their own goods; and they are encouraged to do so. Now, that can be only to the very great benefit of this country: and I think that any legislation which is brought in that might make people hesitate to come and develop in this country might have far-reaching and disastrous effects.
That is on the point of American money here: the other point is retaliation. If we are going to make difficulties about foreign management in this country, what about all our industries abroad? There would be retaliation, and that would have the most disastrous effects. I do not think that point need be developed: I think it is obvious. I hope, therefore, that, with regard to any legislation, the Government would give the most careful thought, and 1185 would bring in nothing which would either cause retaliation or prevent foreign money from coming into this country.
§ 6.33 p.m.
§ LORD SHEPHERD
My Lords, if I may have the attention of the House for a few minutes, I do not want to speak for too long, after our late session last night, but I should like to reinforce the appeal that has been made by my noble friend Lord Shackleton for an inquiry into the whole question of take-over bids. I agree entirely with the noble Lord, Lord Meston, that the majority of take-over bids are conducted in the open. They are completely straightforward, and the public and the members of the Stock Exchange are aware of the interested party purchasing the shares. But there are—they are repeatedly reported in the Press—a small minority of cases which, frankly, leave a nasty taste in the mouth. There are some firms who acquire interests in other companies without disclosing their names. They do it anonymously, to disguise the whole operation and to keep the price down, as my noble friend Lord Meston himself described,
That method of operation is completely undesirable, but I believe that there is an even worse practice, and that is when there is (if I may use the word) connivance by the directors of a company with the purchaser to arrange the sale and transfer of shares without fully putting the shareholders into the picture. There is another method that is sometimes adopted. I am going to follow the example of the noble Lord, Lord Meston, in not mentioning any names, but there was a case not so long ago where a well-known financier wished to acquire the shares of an important company but was prevented by the articles of association from purchasing the shares because the directors and the other shareholders of the company had the first rights to the shares. So what did the financier do? He bought the voting rights of the shares. The shares were not transferred to him, but lie obtained control of that company, over the heads of the directors. He had not broken any law, yet the shareholder 'who sold his rights had broken his contract and his understanding with his other shareholders. I do not think this House would maintain that that is fair and honest business, or that it is desirable.
1186 What is the object of these underhand methods? As I say, I have no objection to the straightforward bid. In many cases it leads to a strengthening of the unit, which is to the good of the country. It is this underhand method of acquiring control of companies to which I and my friends strongly object. The purpose is generally to acquire a hidden asset—written-down value of stocks; written-down value of machinery; written-down value of land—property that has been written down in the company books, and the value of which is probably unknown to the vast majority of the shareholders. In other words, the whole operation is to acquire a large sum of capital and property for a small out-payment. If it is done in the open, one can only blame the shareholder concerned; but when it is done underhand, I believe that the shareholder is being cheated.
Now all these activities are perfectly legal, and I would therefore follow up the point made by the noble Lord, Lord Meston: that it is possible for a foreign company to acquire the interest of a very important company—a company important strategically—through nominees. Can we imagine what would be the view of our noble friend Lord Elibank if Herr Krupp were able to obtain control of Colville's through nominees, and were then able to have the use of British Government capital? I am not saying that it is probable, but it is possible, and I think it is objectionable. If Herr Krupp wishes to get these shares, he should be required to do it in the open. The noble Lord, Lord Kinnaird, was, I thought, rather unfair to the noble Lord, Lord Meston. I do not think the noble Lord has any objection to foreign capital coming into this country. What he wants—and I support him—is to prevent foreign companies from acquiring interests in British companies through nominees, and obtaining control before anything can be done to stop it.
My Lords, I think we must consider not only the interests of the shareholders in this matter: we must consider also the interests of the country and the workers; and I would go one stage further and add the interests of the customers of the company who are being acquired. In a take-over bid a company can be acquired for the property, for its machinery, and then be dispersed. It 1187 could upset a good deal of custom; it could have an effect on exports. So long as a take-over bid, the acquiring of shares, is carried out in the open, there cannot be any objection; but I feel that the Government should look into this question to see whether we cannot protect the shareholders and the country from these underhand methods of obtaining control. I do not think it is asking too much to ask the noble Earl, Lord Dundee to say that the Government will arrange for an inquiry; but in any event I think he could undertake to consult his colleagues in the Board of Trade and the Chancellor of the Exchequer, to see whether an inquiry can be started and a report laid before Parliament.
§ 6.42 p.m.
§ LORD CHORLEY
My Lords, I should like to add a few words. The noble Lord, Lord Kinnaird, has raised a matter of interest and importance which is a little outside the main objective of Lord Meston's Motion; and Lord Shepherd has discussed the same point. I must say that I entirely agree with what my noble friend Lord Shepherd said about that. In many cases not only is there no objection to foreign capitalists setting up a company for industrial development in this country, but it is heartily to be welcomed. The objection, however, is that there is no effective control over these things. Some companies are operating in spheres in which direct national interest is not involved, and probably there is no need to exercise control over them. But there are quite obviously many spheres of industrial activity in which the national interest is very much at stake. There is no country in the world that recognises that more than the United States. We have seen only over the last week or two how British tenders have been, in effect, destroyed by what does not appear on the surface to be very scrupulous use of this argument in the United States.
I suggest that there are quite a number of spheres of industrial and commercial activity in which this country cannot afford to leave the matter to be exploited by foreign industrialists, however effective their work may be, because the national interest must come first. The noble Lord, Lord Meston, who brought up the matter said that there was obviously very great difficulty in handling 1188 this matter by way of legislation. The more one thinks about it the more the difficulties leap to the eye. I do not feel that his own suggestion is a very practical one. There are, however, a number of ways perhaps in which the danger can be to some extent averted.
The noble Lords, Lord Meston and Lord Shepherd, drew attention to the fact that in this type of operation nominees are used a great deal. The last Committee on Company Law Amendment, presided over by the noble and learned Lord, Lord Cohen, when he was Lord Justice of Appeal, dealt with this matter of nominee shareholdings at considerable length in a most valuable Report, and they made certain suggestions which were very carefully considered by the Government of the day when the Companies Act of 1947 was passed. It was then felt that there were considerable practical difficulties in the way of adopting the proposals of the Cohen Committee, but I am not at all sure, in the light of subsequent events, that the stage has not now been reached when that matter should be looked at again.
The Cohen Committee was a very high-powered Committee, consisting not only of eminent lawyers but also of accountants and businessmen, and it may be that experimentation on the lines of their proposals would go a long way to getting rid of this problem of nominee shareholders. That would obviously improve the position a great deal. If we could have these dealings out in the open, and not carried on by nominees until the last moment, it would be an improvement. I believe that an improvement can be obtained by putting greater responsibility on the directors. Lord Shepherd pointed out that in many cases the assistance of the directors is enlisted by the take-over bidder. Sometimes it is done in a perfectly aboveboard way but in other cases in not quite such an above-board way. There are various ways, by means of compensation for loss of directorships, putting up pensions—even direct payments to directors for advising shareholders to accept the offer. Very often the directors hold large blocks of shares for which they receive a higher price.
My Lords, the Cohen Committee, although it did not specifically deal with the problem of take-over bids, was very much alive to this question of "getting 1189 at" the directors. It made a number of important proposals which I think the Companies Act of 1947 went some distance towards carrying out. Nevertheless, looking at the matter in the light of what happened more recently, it appears to me that perhaps the 1947 Act did not go quite so far as it might have done to prevent this unfortunate type of action on the part of the directors of a company. A board of directors can be paid a very substantial sum of money to persuade shareholders to agree to a proposal, and naturally in a situation of this kind the shareholders attach importance to the advice of the directors. But they may riot know that the directors are to have this large sum of money paid to them. So far as I can see, although, in the end, that may have to be made public, the situation may have crystallised before the fact conies to light; and when it does there is no method by which these directors may be made to "cough up" that large sum of money and have it divided among the shareholders or paid over to the company. I feel that the Companies Act can be tightened up to quite an extent in this direction—requiring a rather higher standard of disclosure, a rather higher standard of financial integrity on the part of boards of directors, who very frequently take dubious action in these matters.
I hope that the Government will be able to see their way to accept the suggestion that there should be an inquiry into these matters. Every twenty years or so there is a Committee like that of Lord Cohen. I think that the previous one was under Lord Greene, and it produced an equally admirable Report. We are perhaps getting near the stage when there should be another general inquiry into the working of company law. So much trade and business depend on the effectiveness of the law that the matter should be looked at from time to time by a first-class Commission or Committee of this kind. This is just one of a number of aspects of company law which might be made the subject of inquiry before too much longer, and I therefore hope that the Government will accept this suggestion in a reasonably favourable frame of mind and may even, perhaps, not think it necessary to limit any inquiry that may be initiated on the question of take-over bids.
§ LORD FERRIER
My Lords, I trust that I did not hear the noble Lord correctly, but I understood him to say that directors very frequently acted dubiously. Is that quite fair?
§ LORD CHORLEY
There have been a number of cases, as I understand it, in which directors have been paid substantial sums by take-over bidders to advise the shareholders to accept an offer which has been made. I have only been told that by people who practise in company law. That seems to me to be not necessarily dubious conduct if the directors say they have received this sum of money, and are going to do well out of it, but that nevertheless they are going into the matter and will advise that it is a good bid. But if these matters are not disclosed—and I do not think there is any law which requires them to be disclosed—then I feel that the shareholder is not aware of all the relevant circumstances which he ought to know when he is making up his mind as to whether the bid is a good one and one that ought to be accepted.
§ LORD FERRIER
My objection is to the words "very frequently". We know that there are a large number of cases of amalgamations and the like, some of which we call take-over bids, which, as the noble Lord said, are often perfectly justifiable and straight-forward transactions. It was for that reason that I felt "very frequently dubious" was perhaps the wrong way to put it.
§ LORD CLITHEROE
My Lords, I ask the noble Lord who recently sat down whether he is suggesting that directors receive corrupt payments in order to induce them to advise shareholders to sell their shares at a lower price than those directors think they are worth. If they did that, would not the noble Lord agree that they had committed a breach of trust and were not within the law?
§ LORD CHORLEY
They are not necessarily corrupt; they may be acting perfectly bona fide. But surely the shareholder ought to have this information. And I should think there is a case to be made for the fact that directors, who, after all, are the governing body of the company, ought to receive this money on behalf of the company and not to put into their own pockets.
§ 6.53 p.m.
§ THE MINISTER WITHOUT PORTFOLIO (THE EARL OF DUNDEE)
My Lords, before I make what I hope will be a short reply to this Motion, I want to correct a mistake which was made in a Parliamentary Answer which I gave to the noble Lord, Lord Barnby, on January 27, on a question which touches on this subject. The noble Lord asked about expediting consultation with shareholders, in view, as he put it, of the current climate for take-over bids, and I stated in my reply that a take-over bid which had to be discussed at a meeting with shareholders would normally necessitate the calling of an ad hoc committee and the passage of a special resolution. But, in fact, in most cases no discussion or meeting would be necessary, unless it was a private company in which shares could not be sold without the consent of the directors, or unless the directors owned the majority of the shares. In the normal case of a public company with shares distributed among large numbers of people, whether or not a meeting was considered desirable to discuss the take-over bid would be a matter entirely at the discretion of the shareholders.
§ LORD SHACKLETON
Did the noble Earl say that a meeting of shareholders would be necessary in a private company? It would not be.
§ THE EARL OF DUNDEE
In the case of a private company shares cannot be sold to anybody without the consent of the directors, and therefore a meeting would be probably necessary, or at any rate a communication with the directors. No meeting would be necessary in the case of an ordinary public company.
§ LORD SHACKLETON
I am sorry, but I think the noble Earl is misleading the House again. First of all, this question of the transferability of shares will depend on the Articles of Association, and almost certainly a transfer will require the consent of the directors.
§ THE EARL OF DUNDEE
Having unwittingly misled the House once, and having taken the trouble to correct myself, I find it a little discouraging to be told that I am misleading the House again. I think it is unlikely that the Board of Trade could have made a mistake in correcting their own mistake. After all, the point is that a take-over 1192 bid is a transaction not between the person who takes over and the company as a whole, but between the person who makes the bid and the individual shareholders; and therefore no special meeting under the Companies Act is necessary.
I will certainly and gladly pass on to the proper quarters all that your Lordships have said, but since the noble Lord, Lord Meston, specifically asked me whether the Government intended at present to do anything, I must reply that the Government are not contemplating the assumption of any further powers which would enable them to discourage or restrain the process of take-over bids, the great majority of which, I have no doubt, are socially and economically beneficial to the country. We do not want to discourage take-over bids, as a whole, although there are no doubt some which, although perfectly legal, may incidentally involve some practices or procedures which some of us do not happen to like.
The only method by which take-over bids of any kind could be discouraged at the moment is by the use of the Exchange Control Act, which I had not thought it would be necessary for me to refer to, because I do not imagine the noble Lord, Lord Meston, was thinking of foreign take-over bids when he put forward his Motion. But the noble Lord, Lord Shepherd, has put forward the hypothetical possibility that Colville's might be taken over by Krupp's. In a case of that kind, the consent of the Treasury under the Exchange Control Act would be necessary, and I have no doubt that it would not be granted. But in fact I do not think there has been any case yet in which Treasury consent has been refused. The only case in which it would be refused would be one of the kind envisaged by the noble Lord; that is, when security interests were involved. The Treasury are not anxious to withhold consent when the result of the take-over bid would bring in dollars and if there is no economic objection in the national interest to the transaction being allowed to go through.
The noble Lord, Lord Shackleton, referred to the recent take-over bid which was authorised of the British Aluminium Company. In that case, although the company which took it over was a British one, it had an American connection, so that it required Treasury consent under 1193 exchange control, which was given. The noble Lord is no doubt aware that Mr. Harold Wilson in the other place applauded the decision of the Chancellor of the Exchequer to defer taking a decision on this matter until the situation had been clarified, but said that now that it had been clarified he felt that the decision taken by the Treasury was the right one.
§ LORD SHEPHERD
If the noble Earl would permit me to say so, surely Treasury consent would not be required if a foreign company acquired the control of a company through nominees?
§ THE EARL OF DUNDEE
Yes; but I do not think the noble Lord can object to that being described as rather a farfetched supposition. The other method by which take-over bids might, to some extent, have been discouraged, would have been under the credit squeeze. The Bank of England, at the request of the Treasury, asked all the banks in the country to refuse advances for certain purposes, one purpose being speculation of any kind. The banks all agreed not to lend money to a person who wished to use that money in order to buy either a share or a piece of real property with the purpose of selling it again immediately to make a quick financial profit. Mr. Butler, when he was Chancellor of the Exchequer, stated in reply to a Parliamentary Question in 1953 that he had asked the Bank of England to keep a close watch on takeover bids in order that bank loans might not be advanced for such bids as were made for the purpose of speculation.
Of course, your Lordships will realise that this applies only to cases when the person who makes a take-over bid wants to borrow money from the bank to do so. In the great majority of cases persons who make take-over bids have ample cash resources of their own and in that case, of course, they are entitled to do what they like with their own money. Your Lordships will probably all be inclined to deprecate speculation for its own sake; but even if a take-over bid with nothing more than a speculative object is made and accepted, it seems to 1194 me that the process of speculation cannot go on for ever. The man who buys it may sell it a week later to someone else. The purchaser may sell it again, but sooner or later it must be bought by someone who desires to acquire the asset, whatever it may be, not for the purpose of speculation but for the purpose of use, and the price which is paid for it must be presumed to be its proper economic value. If the speculator finds that the purchaser's idea of economic value is lower than what he, the speculator, had hoped for, so that he loses money, then we need not sympathise with him. But if the purchaser pays the price which the speculator expected, one must presume that the purchaser thinks that the article which he is acquiring has an economic value which justifies the price which he has paid.
The subject of take-over bids, as I think the noble Lord, Lord Meston, began by stating, covers a very wide range of transactions, and has done for many generations. Since the war, it may be that there have been rather more takeover bids than there were before the war, and possibly one reason for that is the changed condition of our economy. The purchasing power of the wage-earning classes has been enormously increased, and that has naturally affected the general pattern of the retail trade in this country. Firms and companies with old-fashioned boards of directors, accustomed to pre-war conditions, may perhaps not be quick to take advantage of new market conditions. The more enterprising and efficient people, seeing that the firm is not earning as much as it could if it acted more energetically, and that the shares are therefore undervalued, may offer what they consider to be the right value of the shares in order that the company may be run on a more up-to-date basis, either by itself or in amalgamation with some other company.
I do not say that there is a particular case in my mind in this, but you may have a board of aged or aged and infirm directors who refuse to modernise their company and take advantage of modern market conditions, and who, if the shareholders were anxious to accept a take-over bid, might object. They are perfectly entitled to object and to submit to the shareholders their reasons for objecting. 1195 And the shareholders are perfectly entitled to overrule their objections and to insist that the take-over bid shall be accepted. After all, it is the shareholders' money which is concerned, and they are the people who ought to have the decision.
I think most persons who make these take-over bids are usually people with expansionist ideas, and that the most common effect of take-over bids which are successfully carried out is to increase production and employment. Thus it would not be in the national interest to do anything which would be interpreted as generally discouraging take-over bids or regarding them as being in any way discreditable in themselves. I think the kind of take-over bid which your Lordships would be most inclined to deprecate would be a bid in which the purchaser intends not to carry on the business but to break it up, to bring it to an end, and to sell its various assets to different people. That is a perfectly legal thing to do, although it may sometimes be regrettable on many grounds. But it is extremely hard for any individual, or any Government, or any official, to judge whether or not it is in the best interests of the country that this kind of thing should happen. After all, if a man buys a motor car and if, instead of using it, he proceeds to pull it to pieces and sell it as scrap, either the man must be a fool—and you cannot legislate against human folly—or else the motor car cannot be a very good car and may perhaps be of more value as scrap than anything else.
The noble Lord, Lord Meston, made one positive suggestion which I must not omit to consider, and which will, of course, be considered in the right quarter. It was that if any party objected to a take-over bid (I presume he meant someone who was in a minority) and appealed to the Treasury or the Board of Trade, the Treasury or the Board of Trade should then have the power to decide that the matter should be delayed for three months in order to give the objectors an opportunity of finding out who was making the bid, and whether it was as desirable as had been supposed at first. I am not sure whether it would be right. After all, the shareholders have made their decision themselves, and it is they who are really responsible whether they 1196 are getting a fair deal or not. I do not know how far it would be equitable for a Government to interfere in order to protect the shareholders against themselves. Certainly I should not like to see officials of the Board of Trade or the Treasury decide whether a take-over bid had been in accordance with certain standards of conduct which do not seem to be very clearly defined—or at least, I should not like to see it unless I had some ill-natured desire to be entertained by the spectacle of other people unsuccessfully endeavouring to perform a task which was quite beyond their capacity. I do not think it is the kind of task which we ought to impose upon Government officials at all.
If there is any question of dishonesty or trickery, it is then possible for the Stock Exchange to stop dealings in the share, and the Stock Exchange is the right authority to decide a question of that kind. I feel very doubtful whether it would be practicable or desirable to ask Government officials to distinguish between a serpent entering the Garden of Eden and playing the bagpipes and the Archangel Michael driving out the unsuccessful directors who had not lived up to the opportunities which bad been afforded to them. But I am grateful to the noble Lord and to other noble Lords who have spoken for their most interesting speeches, and I will, of course, convey what they have said to my right honourable friends, the Chancellor of the Exchequer and the President of the Board of Trade.
§ LORD CHORLEY
My Lords before the noble Earl resumes his seat, I wonder whether he could explain this point under the currency regulations, about the Treasury having, so to speak, a power of control over whether a foreigner purchases a British company. I understood that the currency regulations are concerned with the export of sterling and not import of foreign currencies. Perhaps it is not a fair question; it is a little off the subject of the Motion of the noble Lord, Lord Meston, but if the noble Earl could explain it I should be grateful.
§ THE EARL OF DUNDEE
My Lords, under the Exchange Control Act exchange control approval is required whenever a foreign company seeks to take over a United Kingdom company.
My Lords, I should like to thank the noble Earl for his reply and for all the trouble which he has taken over this matter, and I would also thank all other noble Lords who have spoken. Without wishing to appear ungrateful, I feel that we have all been rather skirmishing this evening. We have avoided mentioning names, because I think it is not satisfactory to mention a name under the cloak of Parliamentary privilege when the unfortunate man has not a proper opportunity to reply. Therefore one should avoid mentioning names as much as possible. But there have recently been a number of what one might call undesirable in every way takeover bids, and in conclusion I think we should all be grateful if the noble Earl could urge upon the other members of the Government the desirability of holding an inquiry into this undoubtedly difficult subject. I thank him very much for his reply and beg leave to withdraw the Motion.
§ Motion for Papers, by leave, withdrawn.