HL Deb 01 March 1988 vol 494 cc98-103

3.4 p.m.

The Secretary of State for Trade and Industry (Lord Young of Graffham)

My Lords, with the leave of the House, I shall make a Statement about the Rover Group.

As the House is aware, it is the common objective of the Government and of the Rover Group board to work for the return of the remaining businesses to the private sector. The Rover Group chairman, Mr. Graham Day, has in recent months been considering the options for achieving this.

I should inform the House that an approach has now been received from British Aerospace plc which has declared a serious interest in acquiring the government shareholding in Rover Group, subject to the satisfactory outcome of negotiations which are now being put in hand.

British Aerospace has asked me that the negotiations be on an exclusive basis and I have agreed to this provided that negotiations are concluded by the end of April. If not, we would then be free to look at other options.

I shall, of course, report the outcome of these discussions to the House at the earliest opportunity. In the meantime, I am sure that, like the Rover Group board and the Government, the House will welcome this interest.

My Lords, that concludes the Statement.

3.6 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the Secretary of State for making this Statement on the Rover Group. We had a little advance warning as we knew that the shares of both companies were suspended on the Stock Exchange at 12.50 p.m. I understand why we did not receive a copy of the Statement until a short while ago.

Can the noble Lord tell us what is the industrial logic of the proposed merger? Is it the case that Rover cannot stand on its own? Will this be another conglomerate merger of the type which has not served us well in the past, a deal dreamt up by a creative merchant hanker perhaps of whom there are many in the City of London? Will the noble Lord tell us whether the Government will retain a large shareholding in the combined entity and whether the golden share arrangements will operate and operative effectively this time?

Will the Government give us an assurance that if the deal goes through they will sell at a proper price that reflects the effort that Mr. Graham Day, his predecessors and governments of all political colours have put into the Rover Group and that reflects the public funding that has been made available? Will the noble Lord ensure that the workforce is properly protected in any arrangements that may be made with British Aerospace?

Will he say whether the exclusive basis to which the Statement refers is exclusive for this company, British Aerospace? Is it exclusive of all options; in other words, is he prepared to consider any other option during the period of the negotiation? Finally, if this were a private sector proposed merger would it not be referred to the Monopolies and Mergers Commission? Will he make sure that it is treated as a private merger and that, if the director general recommends a referral, the referral will take place? When we were in government we were accused by noble Lords opposite on many occasions of nationalisation by the back door. This appears to be another form of privatisation by the back door.

Lord Diamond

My Lords, we on these Benches also wish to thank the Secretary of State for making this Statement. We note with pleasure that he will report the outcome of the discussions at the earliest opportunity.

The House knows that we have no deep philosophical objection to what is proposed provided that it is clearly shown to be in the interests of the nation, in the interests of the employees and in the interests of the taxpayer, and everything that those statements cover. The most obvious question is the one which the noble Lord, Lord Williams of Elvel, has already asked in relation to the industrial logic. Can the Secretary of State give us an idea of what British Aerospace will be saying to its shareholders when it asks for approval of this purchase and sets out the reasons why it is desirous of adding this business to its scope? There may be very good reasons—I am not saying that there are not—but it is difficult at the moment to imagine why it should see a particular advantage both to itself and to the Rover Group in the purchase of the Government's shareholding.

I should like a good deal more detail about the exclusive basis. I note in particular that the Government say that if it is not completed by the end of April, we would then be free to look at other options". As I understand the document, the Government are denying themselves the right to consider a better deal—a higher bid—from any other possibly interested party. Provided that the deal is completed with British Aerospace by the end of April, no one else will be permitted to make a bid. Surely that cannot be right. Can the Secretary of State tell us, for example, what the present interest and intentions of the Japanese are? They have arrangements with the Rover Group, do they not? Can he therefore be as explicit as possible in regard to the normal practice which applies when selling what one has to sell to the best bidder?

Lord Young of Graffham

My Lords, I am grateful to the noble Lords, Lord Williams of Elvel and Lord Diamond, for their questions. Both noble Lords asked me what the industrial logic is. Well, with the greatest of respect, the industrial logic is surely a matter for the board of British Aerospace who initiated the inquiry.

The board may consider that it is worth following the example of General Motors, when they acquired the Hughes Corporation. One has only to look at the recent example of Daimler Benz, who have had discussions with M BB (the German aircraft manufacturer), and at the airframe interests of SAAB and Fiat. Certainly in those countries, with those examples, there does seem to be considerable industrial logic between aircraft and car manufacturers. As I have already said, it is a matter for British Aerospace. I have little doubt that their board will consider that aspect before initiating the approach and that their shareholders, including their institutional shareholders, will also consider it in the normal way.

The noble Lord, Lord Diamond, asked me what would be written to the shareholders. I am not a shareholder in British Aerospace but those who are will in due course be informed. My concern is that there should be proper arrangements in order to deal with this approach by British Aerospace, a valued company in this country, in approaching the Rover Group as it is today. Mr. Day has advised me that it would be proper, and in the best interests of the company, if we were to give an exclusive arrangement for negotiations with British Aerospace which would expire at the end of April. In order to acquire a company of such complexity, it is only right that we give British Aerospace the opportunity to investigate as much as they would wish and then to decide whether to proceed with the negotiations at that time. I hope very much that they will so decide. However, should other parties come along and those negotiations not proceed, then we shall be free to look at other options.

I am sure that all noble Lords will welcome the opportunity to ensure that the Rover Group will continue as an independent group, and that it will continue in British ownership. I also hope that we shall see that the industrial synergy has been well argued by British Aerospace, and that the logic will be there. It is not for the Government to do this but it is for me to take proper steps to look at this merger; a merger which I believe could well be in the public interest.

Finally, the noble Lord, Lord Williams of Elvel, asked the question regarding any possible reference to the Monopolies and Mergers Commission. I am at present in a difficult position because I will have to consider the question of a reference at a later time. Perhaps, in the fullness of time, the noble Lord can tell me what exactly the overlapping interests of the two companies are.

Lord Harmar-Nicholls

My Lords, is my noble friend aware that the exclusive nature given until the end of April is in conformity with common sense? It is not always the best policy to put a company up for sale by auction. As regards getting the terms and the price you require, to give that exclusive offer is much the best way of getting the type of answer that is most desirable. At the end of April another situation arises. But, until then, the line being followed seems to be in accordance with common sense and with normal practice in such matters.

Lord Young of Graffham

My Lords, I am most grateful to my noble friend.

Lord Stoddart of Swindon

My Lords, I noted that the noble Lord said that it was desirable that the Rover Group should remain in British ownership; and we would all say Amen to that. But if the company is acquired by British Aerospace, what is there to prevent them from then negotiating with Ford, or some other foreign company, and for such other company to acquire the whole of that British asset?

Lord Young of Graffham

My Lords, the answer is nothing except the terms of any agreement which we shall enter into with British Aerospace.

Lord Stoddart of Swindon

My Lords, will the noble Lord give the assurance that he will ensure that that proviso is in the agreement that is made?

Lord Young of Graffham

My Lords, in principle yes. However, it is far too early to settle details at present. Negotiations have only just commenced, and we will deal with that situation when it arises. Incidentally, I did not say that it was desirable—although it might well be—I said that all in your Lordships' House would be happy with the thought that a British company was negotiating to buy the Rover Group.

Lord Jenkin of Boding

My Lords, is it not a tribute to all those who have the responsibility for the management and working in the Austin Rover Group that they have now brought it to the point where a public company, answerable to the market, considers it worthwhile making a substantial hid for it? Can my noble friend assure me that the arrangements that have been made by Rover with the Honda company will subsist, and that there will be no question of those arrangements being broken? Honda has played an enormous part in the improvement of the company's models.

Lord Young of Graffham

My Lords, I am most grateful to the noble Lord, Lord Jenkin of Roding. I apologise to the noble Lord, Lord Diamond, because I did not answer one of his questions. However, I can say to both noble Lords that the Honda company, which has a valued commerical arrangement with Rover, has been informed of the situation. The company has sent me a message to say that they welcome such negotiations and look forward to continuing to co-operate and work with the Rover Group in the new circumstances should they transpire.

I should say to my noble friend Lord Jenkin of Roiling that I merely said that negotiations had been entered into. The Rover Group bears the scars of many years of losses. It needs a substantial strengthening of the balance sheet before it will be in a position to live an independent existence. But that is no doubt one of the matters we shall be turning our attention to in the weeks to come.

Lord Barnett

My Lords, has the noble Lord the Secretary of State intimated to British Aerospace that in the event of a successful outcome of negotiations he would consider writing off any of the debts which have accrued? Furthermore, returning to the point made by the noble Lord, Lord Stoddart of Swindon, does he recognise that there was a great deal of opposition—not least from his own side in another place—when it was proposed to sell parts of the Rover Group, and that as a result the proposal was dropped? If the group is successfully sold to British Aerospace, or anyone else, does he now have in mind to find some other way of perhaps preventing the resuscitation of a golden share? Perhaps he can tell us how that would operate?

Lord Young of Graffham

My Lords, I say to the noble Lord, Lord Barnett, that part of my reply to my noble friend Lord Jenkin of Roding was that there would have to be some restructuring of the balance sheet. That might be considered a euphemism for looking at the existing burden of debt which has accumulated after so many years in public-sector ownership. It is a matter of state aid; and a matter which has to be negotiated with Brussels. It is also a matter which will be considered in the weeks to come.

The noble Lord, Lord Barnett, must think that I have a very short memory indeed if I cannot remember the events of some two years ago, when the previous discussion of the future of this company took place. I remember it well. The noble Lord is wrong in one respect in that only last year we sold Leyland Trucks to DAF, and the bus division went as a management buy-out. Therefore there has been continual disposal of different parts of the Rover Group. Indeed, I believe that there was a management buy-out reported in yesterday's press.

Therefore what we are looking at now is an opportunity, perhaps a unique one, of a British company (British Aerospace) expressing serious interest in acquiring the entire Rover Group. I hope that the negotiations will proceed well, and I look forward to seeing what transpires therefrom.

Lord Lucas of Chilworth

My Lords, notwithstanding what has been said to and asked of my noble friend the Secretary of State, would it not be in the interests of the two parties concerned if we did not ask for too many details at this stage, because they are essentially of a commercial nature? Given that British Aerospace has exclusive time until the end of April, does my noble friend agree that that signals the Government's intention to dispose of their shareholding at some time, and should we therefore not be as mistaken as we were just two years ago in closing, by comment, all other doors that may open an opportunity for the company and its workforce to move forward into an increasingly competitive market which spans the world and not just the United Kingdom?

Lord Young of Graffham

My Lords, I hope that the new vista opening for all those who work within the Rover Group will be enlarged by negotiations with British Aerospace. It is much too early to be more specific. I have come to your Lordships' House to tell your Lordships that negotiations are being put in hand. They will be concluded one way or the other by the end of April. As soon as they are concluded, I shall return to your Lordships' House to report the outcome.

Lord Peston

My Lords, bearing in mind that the Minister will come back to the House, may I ask: do not the Government have a duty, if the Rover Group is to be sold, to obtain the highest possible price for it? Therefore, whether there is an exclusive basis for dealing or not, will he not at some stage have to explore other possible bids for this concern?

Lord Young of Graffham

My Lords, I am sure that the Government know their duty. Their duty may or may not be as the noble Lord says it is. An approach has been made by a reputable company which wishes to negotiate with the Government to acquire their share interest. We have properly agreed an exclusive right for a specified time. I hope that the negotiations will lead to a successful outcome. They may or they may not. Other events may or may not occur during that period. All that we are doing today is to announce the start of the negotiations.

Lord Williams of Elvel

My Lords, perhaps the noble Lord can clear up two points. He may have answered them, but I perhaps did not understand exactly what he said. First, do the Government intend to retain a golden share arrangement in the merged company, if the merger takes place? Secondly, is the noble Lord aware that the director general does not have to have regard to overlapping interests; he has to have regard to the criteria defining public interest set out in the Fair Trading Act. It is under those criteria that the director general should be looking at this merger.

Lord Young of Graffham

My Lords, I am sure that the noble Lord, Lord Williams, has just temporarily forgotten that there is already a golden share in British Aerospace. That golden share will continue after the merger. It is too early to say anything about the other matters that arise out of the deal, because negotiations commence only today. I do not believe that it is right or proper to speculate about the outcome of negotiations on the very day that we commence them. I am aware of the duties of the Director General of Fair Trading. I am inhibited from commenting upon them.

Lord Glenamara

My Lords, when the noble Lord answered the two initial questions about industrial strategy, he did so purely from British Aerospace's point of view. What about the industrial strategy as seen by the Rover Group? Surely when Mr. Graham Day approached the Secretary of State he set out the benefits of the takeover as he saw them? What were they? Or is it merely another example of selling the family silver in the greatest possible haste?

Lord Young of Graffham

My Lords, the Rover Group is a mute testament to past decades of government industrial strategy. Our problem today is to deal with the results of that strategy. On behalf of the Rover Group, Mr. Day recommended the negotiations that we are entering into. I accepted his advice.