§ 3.22 p.m.
§ TEIE MINISTER OF STATE, MINISTRY OF TECHNOLOGY (LORD DELACOURT-SMITH)
rose to move that the Restriction of Merger Order 1969 be approved. The noble Lord said: My Lords, this Order was made on August 6 this year and laid before Parliament on August 11. Its purpose is to give 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, Limited, and De La Rue, Limited. The Commission concluded that the proposed merger would 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 Report on June 2. I should perhaps explain that it has been the practice of the Board of Trade, in cases where the Monopolies Commission have recommended that a merger would be against the public interest, to invite the chairman of the company or companies concerned to undertake not to proceed with the merger. On this occasion the chairman of the Rank Organisation, as he was quite entitled to do, declined to undertake that the Organisation would not renew their former bid for De La Rue or take any other action to place the Organisation in the position of controlling the De La Rue Company. The President of the Board of Trade then concluded that in order to remove all uncertainty about the position, and to give full effect to the conclusion of the Commission, he had no alternative but to lay the present Order before Parliament.
This is the first use of the powers given by the Monopolies and Mergers Act 1965 to prevent a merger which the Commission have recommended should be prohibited. In the nature of things, it is directed specifically to actions by the Rank Organisation. In your Lordships' House the Special Orders Committee decided that it was a hybrid Order and accordingly allowed a period during which the Organisation might petition. No Petition has in fact been received.
766 The Order has a twofold application. In the first place, it relies on the power to prohibit the doing of anything which will or may result in any bodies corporate becoming interconnected or coming under common control. In the second place, it relies on the power to declare it to be unlawful to make or to carry out agreements or arrangements —in this specific case, any agreement or arrangement by the Rank Organisation for the acquisition of any stock or shares in the De La Rue Company. Such a provision is necessary to remove all uncertainty and doubts affecting the De La Rue position, because the extent to which the ownership of the shares of one company by another constitutes effective "control" is not defined. It is not defined in legislation and it could vary according to circumstances. To safeguard the position of third parties and avoid legal complications, it has been specifically provided in the Order that this provision is not to apply in such a way as to prevent the carrying out of any legally enforceable agreement which was made before the date of the operation of the Order.
The arguments which led the Commission to conclude that the proposed merger would be against the public interest are fully set out in the Report which was presented before Parliament on June 9. Having received submissions from both companies and having had the benefit of hearing their representatives, the Commission concluded that the merger would bring with it a real and serious risk of damage to the efficiency of the De La Rue business through its effect upon the management personnel and consequently upon overseas trade commitments.
Some criticism has been advanced of the Report to the effect that it perhaps placed an undue reliance upon management factors, which could easily be tested, and particularly on the expressed intention of certain key staff of the De La. Rue company to leave that company in the event of the merger's taking place. I would refer your Lordships to those sections of the Report which explain why in this case such factors were of particular importance. It was because of the need to maintain personal confidence and personal contacts in certain important and 767 specialised aspects of the De La Rue business. I should like to make it quite clear that it should not be inferred from the Commission's reaction in this case or from the Government's acceptance of their Report that statements of the intention by managers to quit in the case of contested merger bids would usually be regarded as a reason for prohibiting a merger.
The Report did not exclude the possibility that if other things were left unchanged the market orientation of the Rank Organisation might lead in certain cases to a more efficient marketing of De La Rue products in the long term. It concluded that there was a serious risk that the efficiency and trading volume of De La Rue would be affected by a merger and that this had particular implications for the public interest, inasmuch as several of its operations are in fields where it is the leading company, or one of the leading companies, which overseas competitors.
The then President of the Board of Trade was satisfied that the Commission had satisfactorily carried out their function of investigating the proposed merger and that their conclusions were sufficiently warranted by the evidence and the arguments provided in the Report. The decision to make this Order was a necessary consequence of this fact, once it became clear that the Rank Organisation Limited would not voluntarily agree not to proceed with the merger. I beg to move that the Restriction of Merger Order 1969 be approved.
§ Moved, That the Restriction of Merger Order 1969 be approved.—(Lord Delacourt-Smith.)
§ 3.30 p.m.
§ LORD DRUMALBYN
My Lords, first of all, I should like to welcome the noble Lord to his first legislative speech, as opposed to his speech on the Address to the Throne, and I would congratulate him on the fair and balanced way in which he presented the case for this Order. In passing, may I say that we have one advantage in this House, in that we can see from the Order Paper at once whether the Government are asking your Lordships' House to accept or reject their own Motion on the Order Paper.
768 In moving the acceptance of this Order the noble Lord has raised several issues, and I should like to deal with some of them. The Special Orders Committee reported that there was no precedent for this kind of Order; this is the first Order of its kind that has been made, and for that reason alone, perhaps, it is worth our while to consider what are the issues raised. If I may raise one issue at once, the noble Lord said that the Board of Trade had no alternative but to bring in the Order, in view of the fact that Ranks themselves were not prepared to accede to the terms of the recommendations of the Commission. Of course, the Board of Trade had an alternative course: they could have agreed with Ranks and not with the Commission. I think it is important that we should get these things right as we go along. In a case like this, I feel it is important that the Government should not move an Order unless the case is proved absolutely beyond doubt, because in effect what they are doing is placing an injunction upon a particular firm to prevent them from doing something that legally, apart from the Order, they could perfectly well do.
The findings of the Monopolies Commission are not—and I should think could not be—based on facts in the nature of the case here. They are certainly not based on the records of the two companies, which are in remarkable contrast. They are both highly reputable companies which have an overseas trade. On the one hand there is the Rank Organisation, which in the 35 years of its existence has built up its capital employed to £180 million, and its annual turnover to £200 million, and has increased its return on capital from 13½ per cent. to 23 per cent. in five years to 1968, admittedly largely on the spectacular success of marketing Xerox at home and abroad. On the other hand, there is De La Rue, which has existed for 150 years, and according to the Commission had capital employed of £28 million in 1968, and earned a return on capital of 9.4 per cent. in 1967 and 13.1 per cent. in 1968. Each of the two companies contains some divisions that have been more successful than others. The findings of the Monopolies Commission are based on their collective appraisal, and therefore not on the facts but on future estimates and assessments given to them by the parties. 769 The Act requires the Monopolies Commission to consider whether a merger, or a proposed merger, referred to them by the Board of Trade operates, or may be expected to operate, against the public interest. The Commission must make up their minds one way or the other. They are not allowed to say: "Sorry, we just do not know"; and yet that may be the case when you are peering into the future. It is not enough for the Board of Trade to say: "We do not know the answer. Let us ask the Monopolies Commission", unless at the same time, I should have thought, the law allowed the Monopolies Commission to say: "Sorry, we do not know the answer, either." I think that is something that the Government must consider.
Where the proposed merger would place the resulting combine in a position of market dominance, or would enhance an already existing position of market dominance, we shall all agree, I think, that a reference should be made. In such a case whether the proposed merger was between two companies operating in the same field, or between two companies standing in the relationship of supplier and customer the area of competition would be reduced, and in consequence there would be risks of restriction of supply and of higher prices. There could also in some cases be a loss of efficiency due to the absence or the reduction of competition. These risks are inherent in monopoly, whether in the private or the public sector.
Similarly, where a foreign-based company is seeking to take over a home-based company, most of us would agree that the Board of Trade should consider the merger if it was over £5 million in assets, as the Monopolies and Mergers Act 1965 prescribes; and, if necessary, the Board of Trade should refer it to the Monopolies Commission. When I say "the Board of Trade", I am, of course, a little out of date, because it is now MINTEC; but I am looking at it from the position that existed at the time when the Order was made. Such acquisitions are not necessarily undesirable in themselves, but there is a risk that particular acquisitions, or too many such acquisitions, could threaten national economic independence.
In all these cases I suggest that there is a clear criteria, and it is perhaps not 770 too much to say that that being so the onus of proving beyond doubt that the acquisition is not likely to operate against the public lies with the acquiring company. But in the case now before us there is no such clear criteria. This is a classic case of a merger between conglomerates; that is, two companies, each with widely varying interests, none of which appears to overlap or to conflict. The question of monopoly power therefore does not arise. What does arise is the question that we have often discussed in the past; namely, the size of a conglomerate and the possible effect on efficiency, and particularly on the balance of payments, where one or both of the companies are exporting or trading overseas.
It would seem, therefore, that this proposed merger was referred, as much as anything else, to the Monopolies Commission as a test case. I would ask the noble Lord this question. Would it not have been better if the Board of Trade had referred mergers between conglomerates as a separate issue? The Monopolies Commission have in fact considered the issue on its reference, and have attached some general observations on mergers as an Annex to their Report: indeed, I am tempted to say that the Annex seems to be the most permanently valuable part of the Report. In their conclusions to the Annex they say this conglomerate mergers:Their likely or prospective effects on efficiency are in the nature of the case less easy to identify and demonstrate"—They mean, of course, less easy than in other sorts of mergers—but they are none the less important to assess.Then one has to ask: who should assess them, and where should the burden of proof lie? In the absence of any clear criteria, I suggest that in contradistinction to what are known as vertical and horizontal mergers—those to which I have referred before—the burden of proof should lie with the company to be acquired as to who should assess them. The choices seem to be, first, for the Board of Trade (that is again MINTEC of course) to decide without reference to the Monopolies Commission; secondly, for the Board of Trade to decide after reference to the Monopolies Commission; thirdly, for some other body to be set up to deal with them; and fourthly, to 771 leave it to the market and the shareholders.
I must say that this Report, in my view, is not a very good precedent for consulting the Monopolies Commission on that kind of issue. But the noble Lord has made it clear in his speech that some special kinds of issue arise under this particular case. There are two reasons for my saying this, the first of which is that the reference takes so long. The Board of Trade referred the case to the Monopolies Commission on January 28. The Act requires the Monopolies Commission to report within three months, but allows the Board of Trade to grant an extension of time if it thinks it is necessary. If my calculations are right, the Monopolies Commission took three and a half months to send out this Report on May 15 and the Board of Trade announced its agreement with the conclusions of the Commission in just under a fortnight. I do not think that that was at all an excessive time; I think the Board of Trade dealt with it with commendable promptness. The noble Lord made a pardonable mistake as to the time when a document was laid before Parliament, because as it so happens there was a strike on at that time and the document came before Parliament on June 16, and not June 9.
The general point I am making here is that by mid-June the merger was really stone cold. In other words, the effect of a reference—and I think this must be recognised—of an opposed take-over is almost certainly to kill the merger stone dead, whether or not it is regarded as not being contrary to the public interest. This is very important to recognise. The subsequent examination of the body or bodies is a mere academic formality. It is the act of the Board of Trade, or MINTEC, in referring the case to the Monopolies Commission that really puts an end to the matter right away because of the time that it takes. During the passage of the Monopolies and Mergers Act through this House I argued that there should be whole-time members of the Monopolies Commission who could immediately consider the reference of a proposed merger and report in a matter of days, not weeks or months. The noble Lord, Lord Shepherd, took the point, but I gather 772 that nothing has been done. One must bear in mind that as soon as a company is threatened with acquisition it must immediately start looking at itself, if only to be abe to present to its shareholders its case for opposing the merger, if it decides to oppose it. It would be quite wrong to assume, therefore, that there is any practical difficulty in a quick inquiry, provided that those conducting it can devote their entire time to it.
The second reason I give is that the estimates on which the Monopolies Commission based their appraisal have already been shown to be defective. This is not something for which one can blame the Monopolies Commission in any way, because they had to rely upon the terms that were given to them. In their Report, the Monopolies Commission, talking of De La Rue, said:The estimates for 1968–69 and the forecast for 1969–70 foreshadow further substantial improvements both in turnover and profits in relation to capital employed.In the past week we have had an announcement of the revision of the estimate of profits for De La Rue, and apparently they now think that the estimate is going to be about one-third less than the estimate put forward earlier. I think it is a matter of over £1 million less in profit.
My Lords, if this estimate has proved far out, how much further out is the estimate as to the key personnel who would have left De La Rue had the merger gone through? The noble Lord recognised this difficulty, but it is crucial to the whole case. If "key personnel" includes the board itself, no doubt the board would have stood or fallen together if the merger had been left to the market, although one cannot be sure. The board had every right to fight for the continued independence of the company, and for their own survival. Indeed, they were fully entitled to use as a weapon the ballot they held among their personnel. They showed considerable astuteness in this, but I should have thought it was a tactic that could work only once, and I think that the noble Lord, in rather guarded terms, said this. He said that there were special considerations because of the position of De La Rue with regard to bank-note manufacturing, and the special relationships of the company with other Governments, and so on. I should have thought that 773 the Commission here overestimated the likely change in those relationships. Surely, De La Rue International, Limited, would have continued, whether as a subsidiary of Rank or of De La Rue.
Can we really accept at its face value a ballot of this kind? Surely we should have some regard to psychology. May I put this to noble Lords opposite, because I think they will see the point here? Supposing Marplan or Gallup were now to run a poll, and the question was: "If the Labour Government wins the next Election, will you go abroad; will you emigrate?". Would noble Lords opposite accept the answer to that as a fair expression of intention? No! of course they would not. I want to bring home to noble Lords opposite that it must be very rare indeed for employees to rejoice when their company is taken over, especially if it is a company of long-standing repute—unless, that is, the take-over is a salvage operation. Mergers are not welcomed by employees, whether the merger is opposed or negotiated by their board. Such a ballot is an expression of feeling; it is not, and cannot be, an expression of firm intention. To take such a ballot at its face value is really to cast a slur on the key personnel themselves; on their confidence in their own capacity and adaptability to meet the challenge of serving in a larger and more aggressive organisation. Yet it is clear that the Monopolies Commission attached great weight to this. In paragraph 98 they said this:Of much greater importance in our view is the likely reaction of the De La Rue management, as individuals, to being taken over by Rank. We are satisfied that the merger would have serious adverse effects on the present, and in our view efficient, management of De La Rue in the sense that there is near certainty … that several key persons would leave and others, if they remained, would suffer loss of morale".This thought is picked up by, and twice stressed in, the Monopolies Commission's conclusions, once in referring to the real risk of loss of efficiency, and the second time in expressing the view that Rank, (and I quote) had:underestimated the difficulties with which it would be faced and the risks it would run".It will be a sorry day for Britain if business in this country is to be discouraged from running risks, and from 774 making its own assessment of the risks it runs.
I do not suggest that your Lordships should reject this Order. I think the Order is now the only way for everybody concerned to get out of an impossible situation. The last thing that Rank want, I imagine (I have not consulted them), is that their second offer made ten months ago should now be accepted, because of the rise in the value of Rank's "A" shares, and the fall in the value of De La Rue's shares since then. Rank's "A" shares have risen from 86s. 6d. on the day of the second offer of January 9, to 112s. 6d. this week, while De La Rue's have fallen from 49s. 6d. before the first offer (of course they went up to 66s.-odd after that) to 36s. 3d. to-day. De La Rue's shares are now less than half, 44.2 per cent., of the current value of Rank's second offer. If anyone should say, "Does not that show the wisdom of the Board of Trade in holding up the merger?" I would answer, "Certainly not". Nobody can tell what would have happened to the shares if the merger had taken place early in the year. For all anyone knows, Rank's "A" shares might have stood still higher, on the basis of the future rather than the present earnings, and of the benefits to accrue from the merger.
The points I want to emphasise, my Lords, are these. First, if there are to be references on proposed mergers, especially opposed conglomerate mergers, they must be done quickly. Secondly, there must be clear criteria. Thirdly, I suggest tentatively that the burden of proof that the merger is likely to operate against the public interest in the case of a conglomerate merger, as distinct from vertical and horizontal mergers, should be placed firmly on the company to be acquired. I would also say that it is absurd that a perpetual ban should be placed on any one company, and one company only, acquiring shares in another, and I hope that a further Order revoking this Order will be laid as soon as possible.
Finally, I must point out how difficult it is, as this Report shows, for a mixed outside body of efficiency experts, academics, businessmen and others—however wise they are—to look behind the assessments of future events and trends that are placed before them. And I would conclude by saying: when in doubt 775 let the market decide. There is more wisdom in the market than even MINTEC can compress into the four walls of one room.
§ LORD ROYLE
My Lords, before the noble Lord sits down, I wonder whether he would answer this question. Does he not feel that the Government's case for the Order is strengthened, and his own case weakened, by virtue of the fact that the parties in the case had the opportunity of appeal for a period of 14 days after it was considered by the Special Orders Committee—and surely everything he said this afternoon could have been considered in such a Committee. But no appeal came, in spite of the fact that the Special Orders Committee took special steps to see that the parties knew of their right of appeal.
§ LORD DRUMALBYN
No, my Lords, I would not accept that at all. The points that I have been making have been quite different. I have pointed out that the whole thing was stone cold, and there is not much point in making a petition against something which is stone cold.
§ 3.51 p.m.
§ LORD DOUGLASS OF CLEVELAND
My Lords, might I speak before the noble Lord replies? I do so with some diffidence, because I had not realised that this matter was coming up. I think I should declare my interest as a part-time member of the Monopolies Commission. I was very interested in the comments that were made on this Order by the noble Lord on the opposite Benches. So often there is a desire for speed in the business world to-day, when speed itself could damage the issues that one has in mind. I was not on the group that dealt with this matter, so I can speak quite objectively; I was not part and parcel of the actual decision.
It was in fact a conglomerate; and the noble Lord has suggested that conglomerates should be a separate issue. I do not see how that could be, because conglomerates, by their very nature, are a mixed bag. It is not easy to make decisions when you have a specific instance to argue and you can move along a direct field without the distractions of moving from one field to another. To imagine that you could get consideration 776 in a satisfactory manner over a very wide field of conglomerates very speedily is, I think, to hope for the moon.
Let us look at the type of men on the Commission. They are men from business, long experienced in business; accountants who are expert in judging the accounts of the various companies; professors who have all the training in the academic field. They sit together examining what these companies have done and what they are likely to do. Trade unionists are there; and I am bound to say that we, as trade unionists, are very much interested in what is going to happen to men—and I do not care whether they be workmen, employers, managing directors, or who they may be. Any suggestion that one should ignore the De La Rue contention that many of these men would leave would be one that would lead at the end of the day to complete frustration. I submit that one cannot merge two big companies like this with the prospect of the main men in the management of one of them threatening to leave, with all the experience and expertise they have, and hope for something successful to come out of the quarrel. I do not think you can take conglomerates as a separate issue; I think you must take each one specifically and examine it very carefully; and that is not going to be done in a matter of days.
Do we want the matter dealt with judicially with a full-time Commission? A full-time Commission, in my opinion, would consist mainly of legal minds, because of analysing the legalities of the particular situation. One might as well put it before a judge straight away. But from the Monopolies Commission one gets the expertise of men from different fields of life bringing all their wisdom and experience to bear on the situation. For what? To see that the consumer is not milked by a monopoly that is against the public interest. I contend that we could not have a better set-up for that particular purpose. Then consideration has to be given to what is going to happen to the men. Inevitably in mergers there is rationalisation, which means redundancy. I do not think it is possible to decide how much redundancy there will be, and what is going to be done about that redundancy, inside three or four days.
§ LORD DRUMALBYN
My Lords, may I interrupt to say, first of all, that, so far as I can remember the Report, the Commission did not consider what was going to happen to the men. Indeed, I should doubt whether it was relevant in this case, because it was a conglomerate with no conflicting interests, and the whole idea was that the businesses should go on more or less as before, to be reorganised and improved if possible. This was the conception.
§ LORD DOUGLASS OF CLEVELAND
My Lords, it is some time since I read the Report, too, but I was using the noble Lord's own argument that it was wrong to consider the opinion of certain of the De La Rue employees. I was not arguing on the Report; I was arguing on the noble Lord's particular statement on this point. When we are dealing with these mergers we have, as I say, in the public interest not to ignore the men; and I do not care whether they are managing directors, chairmen or the ordinary men who are running the company. I do not want to carry this matter further. I should like to do some further reading of the Report and have a long argument about it, but the noble Lord says he is not opposing the Motion; he is only expressing an opinion. So I thought that I ought at least to express some opinions as to what has to be done in respect of these mergers which are undoubtedly coming and will become more and more pertinent to the economic life of this country.
Having said that, I would say that there is a trend in America now for graduates to refuse to go into big companies. They are scared at the very size of the companies, because as a result of the education they have been given they do not believe there are men about who can manage these big companies, and that their very size is going to beget inefficiency. In America at the present time graduates are seeking employment with small firms rather than with big firms. This is a tendency which will require a good deal of examination; and to set up a judge to decide what will happen—or judges if you like: a small group of men—I do not think will solve that problem.
The last statement the noble Lord made, that there is more wisdom in the market, I think is very much open to 778 challenge. The market would have a merger in order to create a monopoly because it is good for the people who run that company; they would have bigger profits as a consequence. That is what the market does. Because the market does that, we have set up the Monopolies Commission, and I think it is accepted by both sides of this House that the Commission is necessary. To suggest that the market has more wisdom than the people who are thinking these things out is a complete mistake and misses the reason for the Monopolies Commission itself.
I hope that this Order will go through. It may be, as has been said, that at some time there will have to be reconsideration. I should never object to that, because nobody can tell with certainty what the future holds for any of these companies, either separately or combined. One can only make an estimate. What a Government do with their taxes and interest rates after that estimate can throw the whole scheme haywire. So on this point I should not disagree if in the future it were felt there should be further consideration. Let the further consideration be given. I hope it will be done by a group of businessmen, academics and trade unionists who are prepared to sit for a month or two and consider it, rather than rush a decision which at the end of the day would be fatal.
§ 3.59 p.m.
§ LORD DELACOURT-SMITH
My Lords, with your Lordships' leave, I should like to comment upon some of the points which have been raised by the noble Lord, Lord Drumalbyn. I think that a full consideration of some of them would justify a very long debate and would take us far afield. The noble Lord was of course right in saying that this is the first Order of its kind, and I am sure he understood in fact the context in which I said that the President of the Board of Trade had no alternative but to lay this Order—no alternative once he had decided to accept the Report of the Commission and had found that it was not possible to secure an assurance by an undertaking being given by the Chairman of the Company concerned.
I do not think I would wish to comment at any length upon the relative records of the past history of the two 779 companies. This is of course dealt with at some length in the Report of the Commission. But as the noble Lord said, this was a question of looking at two conglomerates. The noble Lord really raised the question of whether the judgment of the Commission in these circumstances and on this issue was one that the then President of the Board of Trade should have accepted. The function of the Commission (made up, as my noble friend Lord Douglass of Cleveland has emphasised, of men of a variety of experience and background and viewpoint) is, in the case put before them, to reach a balanced judgment on the evidence which they can assemble. It is clearly difficult for those other than members of the Commission to reach an independent view and to do over again the work of the Commission, especially on such intangible issues as management quality, compatibility of management teams, the likely reactions of individuals and groups of individuals to a change of management—unless, of course, they have in fact had the facility for doing the whole operation which the Commission themselves have done; seen the people, heard the evidence, examined the facts and the figures. The Board of Trade did not consider that it was required to form such an independent judgment and to repeat the work of the Commission. It was satisfied that the Monopolies Commission had applied themselves properly to the issues which were at stake, and I am sure the noble Lord would agree that it would be inappropriate for us in this debate to try again to go over the ground which the Commission covered in their examination of this matter.
The noble Lord, Lord Drumalbyn, has made the point that events which have taken place since the examination by the Commission have to some extent falsified the expectations which were put forward, in good faith, at the time. But I must emphasise that the Monopolies Commission reached a conclusion in the light and on an assessment of all the facts and arguments that were put before them; and their conclusion was that the effect of the proposed merger would, overall, be harmful to the public interest. The reactions of the management, and no doubt other particular arguments and facts that were set before the Commis- 780 sion, were elements in this consideration, and the conclusion was reached, I would again stress, in the light of the particular circumstances of the case with which the Report was concerned—the character of the companies concerned and the significance of the areas of business in which they operated, with their special expert trade position. I emphasise again—and I hope the noble Lord will not read anything more into my words than I express—that we do not view this case as establishing any general precedent; and in the future, as in the past, it will be necessary to examine any particular merger upon its merits. Indeed, this very necessity to examine the merits of individual cases is the justification for having a procedure such as the Statute has laid down and has applied in this case.
The noble Lord made the point that the two firms concerned were conglomerates and, if I understood him aright, expressed the thought that it might have been better to invite the Commission to make a Report on the issue of conglomerates. Of course, as he pointed out, the Commission included in this Report an annex with some observations on mergers, in the course of which they made some observations particularly on the question of conglomerates. The noble Lord praised this annex—indeed, I think he said it was probably the most valuable part of the Report. Since the publication of this Report the Board of Trade has issued a booklet in which is set out a guide to Board of Trade practice in respect to mergers. That booklet was published at the end of July and in it is reproduced the material from this Report which is headed, "General Observations on Mergers".
Perhaps it would be proper to say a word or two about the position of conglomerates, since the noble Lord has referred to this point. This is not, after all, a new form of industrial organisation. Many of our largest companies are highly diversified. But there has been a degree of public disquiet, and this degree of public disquiet, both in this country and elsewhere, was fairly marked at the time this reference took place. This disquiet about conglomerate mergers does not arise from the belief that there is something inherently wrong in principle in this particular form of structure. I think it would be fair to say that it arose 781 rather from the rapidity with which highly complex organisations can be created in circumstances where perhaps insufficient consideration is given to the problems, including management problems, to be met in their subsequent operation. It was the rapid growth of a number of conglomerates in the United States of America which particularly suggested to some people that there were ways in which the quick appreciation of the reported earnings of conglomerates could tend to mislead the market about the underlying strength of the new structure.
The reference of this particular proposed merger, and of course of the proposed merger between Unilever and Allied Breweries, took place at this time, and I think one could claim that the Commission's Report was valuable in clarifying some of the issues arising in these connections, and in suggesting the further financial information which would be of assistance to all concerned in making their judgments. The conclusion of the Commission was, in essence, that while dangers certainly exist and should be closely watched, both by the Government and by the stock market, these dangers should not at present predispose us against conglomerates in principle, or against the creation of organisations of substantial value. I think that defines the present attitude of the Government. It is an attitude of promoting the examination of cases on their merits, and it is our intention to continue with this policy of examining merger proposals, case by case, in the light of the circumstances.
Perhaps I may conclude by making a brief reference to Lord Drumalbyn's observations at the end of his speech about taking the market as the guide to what is right and desirable in these cases. I do not think we dissent from the view that, generally speaking, it is the market that makes judgments about the prospect of industrial firms and about their combinations with each other. The great majority of mergers have always been decided by the views of the stock market upon them, and so far as we can see that will continue to be the case in the great majority of examples. But there surely are occasions, and there are respects, too, in which the market can give a misleading picture. There are even cases in which the judgment that is 782 formed—as again my noble friend Lord Douglass of Cleveland, suggested—is concerned not so much with the efficiency or the prospects in the long-term of the merged firm as with the value of the consideration here and now. I am sure that examples of this will present themselves to the mind of the noble Lord. As we all know, relative share values are mercurial things. If they were less mercurial and more predictable many of us might be much more prosperous than we are. A case in which this is illustrated (and perhaps this bears upon the relative share movements which were quoted by the noble Lord) is that of the proposal which was current at the same time, to merge Unilever and Allied Breweries. This would have been possible in the state of the market in the autumn of last year, but by the summer it was ruled out by the changes which had taken place in share values.
Finally, a merger may proceed and be countenanced by the market for reasons that have not very much to do with efficiency—desire for institutional growth, defensive actions to forestall possible bids, the "go-go" kind of financial leadership, and so forth. I am not suggesting for one moment that such motives or considerations are illegitimate. The interests of the shareholders may justify them. But where large public corporations are involved, and where considerations of the public interest may arise, the Government cannot avoid the responsibility, in some cases at any rate, of promoting an examination of the efficiency features and of the plans of those involved, even if the only apparent result is delay which may enable those concerned to reflect again. I hope that, in the light of the comments I have sought to make your Lordships will be prepared to approve the Order.
§ On Question, Motion agreed to.