British Companies: Foreign Control (Hansard, 7 June 1988)

§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, as I made clear on the day I announced my decision not to refer the merger situations involving Rowntree and Nestlé and Suchard to the Monopolies and Mergers Commission, I believe that open markets are the best means of encouraging efficiency and generating wealth and jobs. I have no plans to introduce measures to inhibit foreign enterprises from investing in the United Kingdom by whatever means.

§ Lord Gray of Contin
My Lords, I am grateful to my noble friend for that Answer. Will he accept that our monopolies and mergers policy as it stands at present looks decidedly vulnerable, when on the one hand it prohibits two British companies that wish to merge and by such a merger to control, say, 25 per cent. of a given market—even if that merger is in order to meet the challenge of the single European market in 1992—yet on the other hand allows a foreign predator to take over a British company, thus enabling it to benefit from that very market?

§ Lord Young of Graffham
No, my Lords, on this occasion I fear that I cannot agree with my noble friend. The simple fact is that the Fair Trading Act and the work of the Monopolies and Mergers Commission are intended to secure competition in our land, and it is competition that is important. Later on this year or early next year I very much hope that the British Steel Corporation will be returned to its rightful place in the private sector. At that time it will have well over 80 per cent. of the United Kingdom market, but there will be no competition difficulties because there is fair and adequate competition from Europe. It depends on the individual sector in each case.
My noble friend also raised the matter of reciprocity. There is no power for the Swiss Government to block foreign takeovers, just as there is no power for our Government to block foreign takeovers as such. Both legal systems permit companies to make themselves proof from hostile bids. The Swiss regime may be more restrictive than ours but I believe that a heavy price is paid for that restriction.

§ Lord Mellish
My Lords, in order to have a logical discussion about this matter, can the Minister give us a figure to indicate the number of British companies 1230 that have invested overseas and bought foreign companies and say roughly how much that investment is worth?

§ Lord Young of Graffham
My Lords, at the end of 1986 overseas investment in the United Kingdom was some £4,300 for every man, woman and child in this country. In 1987 we spent some 30 billion dollars in the United States alone. We own more American companies than the Americans own British companies. There is only one country in the world that has more net overseas investment today and that is Japan. We should be very careful indeed before we, of all countries, restrict people in buying companies in the United Kingdom.

§ Lord Seebohm
My Lords, would the Minister consider making some small amendment to the Financial Services Act so that in the event of a hostile bid—and I mean a hostile bid—the fund managers would have to refer to their board before selling their shares or accepting the bid? That would at least slow down to a certain extent unsatisfactory dawn raids and such activities. The same would apply to the fund managers of trusts, who would have to refer to their trustees. I also think that before decisions are taken consultations should take place with the directors of the company under attack.

Noble Lords
Question!

§ Lord Seebohm
Such consultations would not in any way interfere with the shareholders' rights to sell and it seems to me that it would give considerable satisfaction to people to know that there is at least some chance of the long view being taken rather than the short one.

§ Lord Young of Graffham
My Lords, beauty is in the eye of the beholder. The restrictions put on those who receive a bid would not necessarily be attractive to those who make a bid. It is a market and it has appeared to work satisfactorily for decades past. I suspect that it will continue to do so in the future. We must be very careful indeed before we listen to special pleading. It is important for companies to realise that they are vulnerable and that they must always consider the interests of their customers as well as their shareholders. If they do that, they have little to fear.

Lord Morris
My Lords, does the Minister agree that it is open to any company so to arrange its affairs, in particular by means of a special resolution, as to alter its articles of association in order to protect itself from any hostile foreign bid?

§ Lord Young of Graffham
My Lords, I am not sure whether it is possible for companies to protect themselves from a hostile foreign bid unless the word "foreign" is defined as being outside the European Community. I suspect that otherwise it would be against Community law. However, the shareholders would have to agree to such a course. There are many companies in this country whose shareholders have been so advised and have agreed to make their companies secure against bids, but it is a matter for them and them alone.

§ Lord Somers
My Lords, can the Minister explain to a complete layman what advantages the private monopoly possesses over a nationalised one?

§ Lord Young of Graffham
My Lords, I hardly have to make that case. I think that the sum of £40,000 million that the nationalised industries have lost since we first started that experiment speaks for itself.

§ Lord Williams of Elvel
My Lords, does the Secretary of State have no view at all as to how and how far British controlled companies should remain under British control? Can he seriously say that he is happy that British industry should be put up for sale in the way that it is? Is there no point at which he will stop and say, "So 70 per cent. is owned by the Japanese and 80 per cent. owned by the Chinese and that is enough. Enough is enough"? If so, where is that point?

§ Lord Young of Graffham
My Lords, I have had many good questions from the noble Lord in the past but I fear that this is not one of them. At the moment we are in the position of buying up companies around the world. I wonder at times what constitutes a British company. Today if one were to look at the shareholders of, say, Jaguar—which is as British as the Union Jack—one would find that there are many shareholders who live in the United States of America. If one looks at other companies one finds that the British own many of what are apparently foreign companies. What is important is the process of wealth creation. It is that process alone on which all our future depends.

§ Lord Molloy
My Lords, perhaps I may ask the Minister this question. Does what he has said up to now apply to those few but very important industries which are extremely closely related to matters of defence?

§ Lord Young of Graffham
My Lords, no. There are of course "golden shares" and special arrangements in companies such as Rolls-Royce, British Aerospace and others where there is this particular dimension. Those cases speak for themselves. The arrangement is already agreed; it has been accepted by your Lordships' House at different times in the past.

§ Lord Taylor of Gryfe
My Lords, did I understand the Minister to say that he welcomed the restructuring of companies in order to protect them from predators? I refer to companies with which he is familiar. Alternatively, does he not believe that this would be against the principle of widespread share ownership and responsibility which he has advocated?

§ Lord Young of Graffham
My Lords, I am very grateful to the noble Lord. No, I did not welcome it. I merely reported as a matter of fact that companies can so structure their arrangements, with the agreement of the shareholders, as to render themselves immune from hostile bids, be they foreign or domestic. It is a matter for the shareholders to decide. I believe these days that, put to the vote, very 1232 few shareholders would wish to so organise their affairs because it does not help either the attractiveness of the company or its competitiveness in the future.

§ Lord Williams of Elvel
My Lords, will the noble Lord accept that the Stock Exchange frowns upon such arrangements and will not list companies which have A shares and B shares, non-voting shares—for instance, the National Freight Consortium is trying to get a listing—and employees' shares that carry more votes? Will the noble Lord respond to the noble Lord, Lord Morris? Will he say whether he would encourage in this country laws or practices such as those in the state of Delaware where, as the noble Lord knows, there is an open market with all kinds of matters such as poison pills and scorpion stings if shareholders want them? Will he encourage this practice?

§ Lord Young of Graffham
My Lords, I live opposite Regent's Park Zoo. I should hate to be part of it, and therefore would not welcome the menagerie of devices the noble Lord suggests. It is a matter very much for shareholders of companies. I suspect that the majority of shareholders accept that by adopting these devices they would make companies less competitive and less worthwhile. If one looks at the case of Nestlé, which has two classes of shares, those shares which carry a vote and which are restrictive are, I believe, one half of the price of those which have no restriction and are bearer shares.

§ Lord Cledwyn of Penrhos
My Lords, the noble Lord made an extremely serious statement when he said in reply to my noble friend that there is no limit to the number of British companies that can pass under foreign control. Will he confirm that that is what he said? While investment abroad is an excellent thing can he go further and say how many foreign companies are under British control?

§ Lord Young of Graffham
My Lords, I have already said that at the end of 1986 the average holding of overseas investments was some £4,300 for every man, woman and child. As the holders of the second largest mountain, in value, of overseas investment, it ill behoves us to be restrictive of foreign investment. If the noble Lord would like a list of those companies I shall see whether I can provide such a list. It is another matter, but I shall happily write to the noble Lord. However, we have to be very careful indeed before we, of all nations, put up the shutters.

§ Lord Whaddon
My Lords, does the noble Lord agree that with the dramatic development of perestroika in eastern Europe there may be some very interesting opportunities for overseas investment by Western companies? Will he advise British companies to keep their eye on the situation?

§ Lord Young of Graffham
My Lords, that is a very different matter. I am quite sure that companies looking at developments not only in the Soviet Union but in many parts of the world will find where there are good opportunities. I am sure that they will do so with a very clear and critical eye.