§ 1. Ferranti Limited (The Company) will take steps to increase its authorised ordinary share capital so as to enable the following transactions to lake place.
737§ 2. Her Majesty's Government will subscribe £8⅔ million as ordinary share capital as follows:
| £ million. | |
| 4 million ordinary shares of 50p each at £1.50 each | 6 |
| 2,666,666 non-voting ordinary shares of 50p each at £1 each | 2⅔ |
| 8⅔ |
§ 3. The rights attached to the non-voting ordinary shares would be increased to parity with the voting ordinary shares in the event of a listing being obtained or a marketing being undertaken, or, at the latest, on 1st October 1978.
§ Her Majesty's Government will subscribe £6[...] million by way of a Loan Stock 1983–87 carrying an appropriate commercial coupon.
§ 5. [This clause deals with the Company's bank borrowing limits, and contains commercially confidential figures].
§ 6. Guarantees by Her Majesty's Government in respect of hank borrowings and bid and performance bonds will be withdrawn.
§ 7. The management structure will be as agreed in correspondence between the Company and Her Majesty's Government.
§ 8. The future dividend policy of the Company will be one appropriate to a publicly quoted company of similar character.
§ 9. Appropriate warranties will be agreed between the Company and Her Majesty's Government.
§ 10. In the event of the Company's advisers arranging a marketing or listing of Ferranti shares at a price in excess of £1.50 each within the period to 30th September 1978, then Her Majesty's Government will make available:
- (a) to the then holders of the 4 million shares in issue at 12th May 1975, 1,333,333 non-voting shares at a price of £1.00 each (plus half any excess of the marketing price over £2.00);
- (b) to the public, any other shares from those in issue at 12th May 1975 which have been acquired by Her Majesty's Government in the meantime, at the full marketing price.
§ 11. If at the time of such a proposed marketing, the price at which this could be undertaken is, in the opinion of independent advisers, materially prejudiced by the performance of Transformer Division, then Her Majesty's Government will take appropriate steps in relation to any losses of that Division so as to enable a satisfactory marketing to take place at the price which would otherwise he achievable, and the Company will proceed with the marketing accordingly. In the event of this clause being invoked by the Company, then the offer of shares under clause 10(a) would he at a price of £1.00 plus half the excess of the marketing price over £1.00.
738§ 12. The Board intends to recommend shareholders to support the agreement when submitted to an EGM and directors intend to use the votes of their shares and of those of which they are trustees accordingly.
§ Initialled subject to approval by Ministers on the one hand and by the Board of the Company on the other hand.
§ 3.51 p.m.
§ Lord ABERDAREMy Lords, the House will be grateful to the noble Lord, Lord Beswick, for repeating that sad Statement. I think it will be a matter for regret to many of us that so soon after the Statement on the taking over of British Leyland, we now hear of yet another British firm of international repute being taken over by the Government. Even before it has come into being, the National Enterprise Board is about to acquire an enormous portfolio of shares in what was private industry, and one really does wonder how any Board, however talented its members may be, can possibly run such a disparate conglomeration of industries as the National Enterprise Board is gradually acquiring.
My Lords, in all our minds there is the question of the great need for Government economy in their expenditure. One looks very critically at figures of millions of pounds being put into industry. I wonder whether I may ask the noble Lord three specific questions on this point. First, how was this figure of £15 million arrived at? Is this the figure that the company themselves thought was necessary to carry them through, or would a lesser sum have made that possible? Would it in fact not have been possible to do something at far less cost to the taxpayer in giving support to the ailing Transformer Division, and allowing the rest of the company to continue to trade profitably?
The second question I should like to ask the noble Lord is: Why was it necessary for the Government to take 62½ per cent. of the total equity of the company? If I heard him aright, the noble Lord said this was more than enough to give the Government effective control over the company. Why do we need to spend more money than is necessary to acquire effective control? Would it not have been possible to do it more cheaply and to take a lesser share? My third and final question is, how do the Government intend to ensure that there will be fair 739 competition between the Government-controlled Ferranti and those other privately owned firms supplying electronic equipment? Ferranti will have access to Government capital. Inevitably they will be in a position, perhaps more easily than other privately owned firms, to get orders from the Government. Can this be called fair competition?
My Lords, the Statement is complicated, and will need further deep study. My first reaction is to ask basically, is the taxpayer getting a square deal out of these arrangements?
§ 3.54 p.m.
§ Lord AVEBURYMy Lords, as the noble Lord, Lord Beswick, is aware, we do not object in principle to the investment of public money in this company. Is he aware that we look at it in a quite different manner from the way we see the Government's investment in British Leyland: because the Ferranti enterprise, we believe, can be made viable? We hope that as a result of the solution of its cash flow difficulties the company will make a profit. We accept the reasons given by the Government in the Statement, including particularly that Ferranti has been a leader in the advanced technological potential of this country. These reasons are good enough to warrant an investment by the public. From the information given in the Statement, we are not, however, in a position to judge whether the investment of this money makes commercial sense or not. Can the noble Lord tell me what is the present indebtedness of the company to its bankers, and to any other outside sources of loan capital? What does the noble Lord mean when he says that the new management will prepare plans? This indicates that no plans exist at the moment, and that he is unable to give the House any cash flow projections or profit projections, even for the current year. Is the noble Lord able to tell us what would be the price/earnings ratio attributable to this investment, and what assumptions are made regarding the profits for the current year? What is the commercial rate of interest on the £6[...] million of loan stock? Finally, would he not agree that if the people of this country are being asked to make a substantial investment in Ferranti, whether they like it or not, they 740 are at least entitled to the same information as they would have been given had they been subscribing voluntarily to a new public issue of shares? Could the noble Lord please provide that information?
§ 3.57 p.m.
§ Lord BESWICKMy Lords, I am obliged for what has been said by the noble Lords, Lord Aberdare and Lord Avebury. I share the regret expressed by the noble Lord, Lord Aberdare, that another British company has got into difficulties. But he is quite wrong, and he is trying to inject a quite unnecessary degree of partisanship, when he talks about a takeover. This is not a takeover. This is a negotiated agreement. The alternative was a receivership. The fact is that the present proprietors of the company preferred this method to a receivership. So it really is unwise to talk about another new takeover.
My Lords, so far as the National Enterprise Board is concerned, they did not ask for either British Leyland or Ferranti to get into these troubles. The truth of the matter is that these excessive difficulties are an absolute vindication of the policy of the Labour Government in establishing the Board. The trouble is that it was not established earlier. It could well have helped earlier. I was asked about the sum of £15 million and how it was arrived at. It was the recommendation of Sir Don Ryder to the Government. It was a matter of careful calculation. I do not accept what the noble Lord, Lord Avebury, said, that the price/earnings ratio and the pricing policy is a matter which should be discussed over the Floor of the House on an occasion of this kind.
§ Lord AVEBURYMy Lords, I do not think I said anything about pricing policy.
§ Lord BESWICKMy Lords, the noble Lord was talking about cash flow, and I thought he referred to pricing policy. My point was that these matters were gone into carefully. They are matters normally gone into between a banker and a company seeking a loan or finance of one kind or another. I assure the noble Lord that these processes have been gone through.
I was asked what was the figure of outstanding indebtedness of the company. There have been two loan 741 guarantees, each of £3 million, by the Government to Ferranti Limited, one in September last year and one in January of this year. I am not in a position to say from the Floor of the House what is the total overdraft of the company with the bankers. I should have thought that this was a matter better kept as between the banker and his client. Then I was asked whether it would have been possible to reduce the cost if the Transformer Division had been thrown overboard. On reflection, the disposition of that Division, which was a loss-making Division over a period of time, ought to be a matter of careful consideration before we put people out of work and close down the enterprise.
Of course, it will be looked at very critically. There are certain provisions in the financial agreement which will have the effect of reducing the cost of this loan in the event of a disposal of the Transformer Division. I was asked if it would not be possible to achieve control for less than 62½ per cent. Of course it is not the 62½ per cent. of the equity which is the factor here, but the 50 per cent. share of the equity with voting rights; there is, in fact, only a 50 per cent. share of control.
My Lords, I was asked a question about the interest on the loan. I cannot give a figure. It will be the appropriate rate reigning at the time. I cannot say exactly what rate will be fixed, but it will be the market rate. I think that answers all the questions.
§ Lord ABERDAREMy Lords, I asked the question about competition.
§ Lord BESWICKYes, my Lords, of course, there will be fair competition. It is intended that there shall be full competition as between this company and others in the same field.
§ Lord ORR-EWINGMy Lords, is the noble Lord strictly accurate in saying that there was no alternative other than this immense expenditure of public money, £15 million, or the receivership? Why was it that when certain engineering firms made inquiries at Mr. Benn's Ministry asking whether they could either merge with, purchase, or help Ferranti, they were "choked off" by the civil servants and told that the Ministry was not interested? Is the noble Lord aware that the 742 Industry Act 1972, which is being used for this purpose, is not allowed to be used unless there is no other alternative available? In this instance there was an alternative, or there could have been an alternative, but the firms making inquiries were discouraged. Is not this strictly ultra vires, and will the Government give a detailed explanation, if not at this moment perhaps in a Written Answer, so that both Houses can study it?
Could the noble Lord be a little more forthcoming about competition? There must be a suspicion among the majority of private firms which remain in the private sector that priority will be given by the Government to this public company for research and development and defence orders, handicapping the performance of the other companies. Is it not true that in raising new finance a public company can have guarantees behind it from the Treasury which are not available to a private company. How can this competition be strictly fair?
§ Lord BESWICKMy Lords, as to the noble Lord's charges that other companies were "choked off", unless he can give me some evidence of that he should not make a statement like that. It is certainly true that other companies have made inquiries, but making inquiries is a very different matter from putting forward a satisfactory scheme for taking over this company or getting it out of its difficulties. I have no doubt some of them would have liked to take over the more profitable parts of the Ferranti company. That is a possibility. But if the noble Lord can give me any evidence that there has been any "choking off", as he calls it, I shall be interested to go into it.
As for the question of competition, I cannot go further than to say that it is the Government's policy to ensure that the finance made available to this company, when once we get over the initial trouble, will be by commercial loan and on an equal footing with the rest of the companies in this field.
§ Lord ORR-EWINGMy Lords, I should like to make it clear that I said that when firms made inquiries they were "choked off". Of course, you do not come forward with a hard and fast proposition if you are discouraged by the Ministry from making any inquiries and getting information to allow you to put 743 forward an alternative. One cannot help feeling that the Government of the day, or this particular Minister, were determined to spend public money, at a time when public money is under tremendous pressure, to get control and not to allow other solutions to be put forward.
§ Lord BESWICKMy Lords, if I may say so, kindly, to the noble Lord, when he says he cannot help feeling this way I suspect he is speaking the truth. I do not know of the cases. I happen to know the officials in the Department, and I know the courteous way in which they listen to the various proposals made to them from time to time on a range of matters. I cannot believe that they "choked" anyone off. In the first place, this would not have been a matter for the Secretary of State, anyhow; it would have been a matter which was in the field of the officials for some time before the urgency or the seriousness of it caused it to go to the Minister for decision.
§ Lord ROBBINSMy Lords, could the noble Lord tell us what further information will be available to the public as regards the antecedents of this Statement? Shall we eventually have access to at least an abbreviated form of the analysis made by the body which investigated the case? I ask in no frivolous spirit. It seems to me that we have to learn from past mistakes, and speaking for myself, knowing nothing about the minutiae of this episode, at this moment I simply do not know where the blame lies and why the misfortune occurred. It seems to me that it would be in the public interest for us to know more about it.
§ Lord BESWICKMy Lords, I appreciate what the noble Lord, Lord Robbins, says, and I will see whether anything more can be given. As for the blame, as he puts it, wherever the blame may have lain one thing can be absolutely certain, it did not lie with the Government. This company was in difficulties and had to come to the Government for finance. Whatever had happened was a matter for the company concerned. It just so happens, as the noble Lord well knows, that this is a company closely controlled by one family, and probably not open to the sort of inquiry that might have been the case in a company whose ownership was more widely shared.
§ Lord ROBBINSMy Lords, with deep respect, the Minister misunderstood my use of the word "blame". It was not in my mind to seek to assign blame to anybody. I simply wish, as one who is interested in industrial structure, to discover whether these misfortunes were perhaps the by-product of an international situation, whether they were the by-product of poor management, whether they were the by-product of taxation—all impersonal causes. I assure the noble Lord that I have no arriere pensée at all.
§ Lord BESWICKMy Lords, I was not criticising what was in the noble Lord's mind; I was listening to what he said. I have agreed that I will see whether it is possible to put forward more information. I went on to say, since he used the word "blame", that the area of blame was outside Government control. I am not certain to what extent the difficulties of this company, which, as I say, was very closely controlled by one family, could properly be the subject of a Government Statement.
§ Lord HALEMy Lords, would noble Lords accept my apologies for speaking from the Bishops' Bench; I had not observed the complete absence of the Prelates from a debate on cruelty to animals. May I also say that I did not hear every word of the noble Lord's Statement. It was listened to by others, most of whom have copies of the Statement. Would the noble Lord bear in mind that this very great firm—which has been established in Oldham for 84 years since the arrival of the founder from Italy—has made immense contributions through its technical knowledge, its lead in electronics, its earliest experiments in this country in computers, telephone service, and so forth? In time of war its resources have been wholly at the disposal of the Government of the day. It was the first to establish decent labour relations in Oldham. It would be a very real tragedy if it had to be lost.
When he says that this is a negotiated settlement, does he mean that on the whole it has received general approval? To what extent have the workers been apprised of the contents and expressed approval of them? I know that there 745 have been discussions and I congratulate the Government on the early help that they gave, but I rather hope that we shall have another opportunity of reading the Statement with more care and ascertaining more fully whether there is need and a desire for a debate.
§ Lord BESWICKMy Lords, there will of course be an opportunity for reading the Statement again—it will appear in Hansard together with the heads of agreement. If the noble Lord reads the Statement he will see that I paid tribute to the technological contribution of this company. But, not for the first time, a company which has developed highly technologically has had inadequate financial control. As for the point about the discussions with the workers, again I have made it clear that there have been full discussions with the workers concerned.
§ Lord DRUMALBYNMy Lords, may I ask the noble Lord a point of principle on this Statement? Had this been an issue of equity capital on the market there would no doubt have been a full prospectus from which we should all have known what was to be the future, what was to be the plan, the organisation and the prospects. For example, one thing that might have been known was to what extent the possibility of dividing the company into portions was considered and was practicable. It seems to me that where the Government make a Statement of this kind they are really under a public obligation to give the same kind of information, the same sort of prospectus, as would be given if the equity capital was being launched on the market. Secondly, is it not a fact that there are parts of this company which are viable, in fact profit making, and that many of those parts are in Scotland? In view of the debate that we are to have in this House tomorrow, was any consideration given to the setting up of a Scottish company entirely out of Ferranti, and disposing of those parts which may well be surplus to the national needs?
§ Lord BESWICKMy Lords, I quite agree that had the company been able to go to the market and acquire capital there would have been more information in a prospectus. My understanding is that they endeavoured to raise money in other ways and they failed. That is the 746 truth of the matter. As to whether it is possible to make more information available, the noble Lord, Lord Drumalbyn, raises the same point that I have already answered to the noble Lord, Lord Robbins. I will see whether it is possible in this kind of circumstance to give rather more information. On the question of an independent company in Scotland, it is perfectly true, as he says, that there were those who claimed that if the one division up in Scotland were hived off it could have been profitable. It was fairly obvious that the Transformer Division was highly unprofitable. All these possibilities were considered, and the eventual decision was that it would be better to make this arrangement on the basis of keeping the company in one whole, and then with a closer analysis of the prospects of the divisions to make other decisions later on.
§ Baroness LLEWELYN-DAVIES of HASTOEMy Lords, I think that this is a Statement of the greatest importance, which has obviously given rise to interest in all parts of the House. However, may I remind your Lordships that we have heard only two speakers in our first debate, that we have another debate and business after that, and that we have had nearly half an hour on this Statement. It might on the whole be in the interests of noble Lords if we now passed on to our next business.