HL Deb 25 May 1988 vol 497 cc898-906

2.59 p.m.

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

My Lords, with the leave of the House I wish to make a Statement. This morning I announced my decision not to refer to the Monopolies and Mergers Commission Nestle's bid for Rowntree or Suchard's 29.9 per cent. holding in Rowntree. This decision was in accordance with the advice of the Director General of Fair Trading. It is now for Rowntree's shareholders to decide whether to accept Nestle's bid.

My policy is that in deciding whether to refer a merger to the Monopolies and Mergers Commission the main consideration is the effect of the merger on competition. Neither of those proposals raises competition issues which justify a reference. Nestle and Suchard have only 3 per cent. and 2 per cent. respectively of the United Kingdom chocolate market. I also concluded, after considering the Director General's advice, that there were no employment, reciprocity or other public interest issues which justified a reference.

The United Kingdom has benefited greatly from both inward and outward investment. I believe that open markets are the best means of encouraging efficiency and generating wealth and jobs. This applies to capital markets as well as to markets for goods and services. The success of the United Kingdom economy is the best evidence of the effectiveness of our policies on competition and investment. My decision is consistent with those policies and is in the best interests of our continued economic prosperity.

Lord Williams of Elvel

My Lords, the House will be grateful to the Minister for making that Statement but he must realise that we on these Benches find his decision profoundly unsatisfactory. He must be aware that it will be deeply resented by all who are concerned with Rowntree—management and workforce alike—by the city of York and by the whole of the North of England.

Do the Government not understand that it will give quite the wrong signal in the run-up to 1992? Our companies will be viewed as sitting ducks because of the freedom of our financial markets, whereas companies in other countries are protected either by law or culture. Do the Government not appreciate that, one after another, our major companies are now open to be taken over by any foreign predator who is looking to the longer term future, because the City of London prefers to take its money and run, unlike financial institutions on the continent, which stay with the companies in which they have invested? We have reached a curious pass when a merger such as Rowntree-Cadbury on the competition grounds set out in the Minister's Statement would be referred to the Monopolies and Mergers Commission almost inevitably but a foreign bid would not.

If ever there were a case for a calm study of the public interest while a bid was under review by the Monopolies and Mergers Commission, surely this is it. The public interest in a precedent-setting case such as this cannot simply be determined in the short and hectic timescale of a contested takeover bid. I beg the Minister to reconsider his decision even at this late stage. What he has done is not just bad for Rowntree, for the city of York or for the North of England; it is a kick in the teeth for the whole of British industry and in the long run will be disastrous for Britain.

Lord Jenkins of Hillhead

My Lords, is the Secretary of State aware that while in general I share his views against economic chauvinism and am in favour of the advantages of both inward and outward investment, I regret his decision not to let the Monopolies and Mergers Commission have a look at this case? Apart from the issues raised by the special problem of a bid from a protected and therefore unequal base, consideration must also be given to the fact that, as we move toward 1992, this country, with its desirably open economy, may be peculiarly open to predatory bids from outside the Community by people who wish to establish a position here. Does his decision today and the way in which he has put it forward mean that now the only criterion for referring a bid to the Monopolies and Mergers Commission is market share and the effect of that quantitative share upon the competitive position?

Lord Young of Graffham

My Lords, I am grateful to the noble Lord, Lord Williams of Elvel, though I fear that I cannot welcome his remarks today. We must look very carefully at the facts and not at something that mythology would have us believe. We live today in a world where at the end of 1986 there was £4,300 worth of overseas investment for each and every man, woman and child in the United Kingdom. Last year, 1987, no less than 30 billion dollars worth of American companies was acquired by this country. Only a week or two ago Marks & Spencer acquired Brooks Brothers. When a British citizen goes overseas and stays in a Hilton hotel, he is staying with a British company. We have more interest than any other country in the world, barring Japan, in ensuring that we have an open system and that we do not set up artificial barriers.

Far from the United Kingdom being open to European predators, in the first four months of this year we made 70 bids for European companies. In the last week or so Piaget was bought by Cartier. It might be asked, "What is that to us?". The answer is that Cartier, in its turn, is owned by a British company. Wherever one looks around the world one finds that almost a third empire in terms of British overseas investment is beginning. Therefore, it behoves anyone in my position to tread very carefully indeed before we start putting up artificial barriers.

The noble Lord, Lord Jenkins, said that the Swiss live in a protected and therefore unequal environment. I must tell your Lordships that there is nothing in the Swiss legal system that allows the Swiss Government to stop overseas bids, just as there is nothing in our system to stop overseas bids for that reason only. It is true that the Swiss system allows companies to protect themselves with the consent of their shareholders, but the same is true of this country. Day after day one reads in the papers about cases of companies which live in a protected bid-proof position. So do all our mutuals, many of our institutions and many companies which operate in this country. What we must do is ensure that we use the weapon of reciprocity as a test for referring a bid or allowing a bid where it actually exists, but we must not let that suddenly become a new shield for chauvinism; it will recoil back upon us more than upon anyone else.

Perhaps I may once again confirm that the criteria for the reference of bids to the Monopolies and Mergers Commission remain what they have always been. Indeed, they were restated in the Blue Paper on mergers policy which I brought to your Lordships' House not many weeks ago. Of course competition is pre-eminent. We look at competition in the home market in the light of the emerging market in 1992. As our home market gradually evolves into that emerging market in 1992, so will the competition test be taken that way. Perhaps I may describe a very good instance of that. During the course of this year we hope to bring the British Steel Corporation to this market. It has 85 per cent., or thereabouts, of United Kingdom home sales. There is no case for a reference for a merger in that instance because there is more than adequate competition in Europe. There may well be other sectors of British industry that have no such protection.

The second ground is considerations of national interest. I do not believe that anyone in your Lordships' House would say that chocolate is a matter of strategic reserve. The third matter is reciprocity. I hope that what I have already said will be enough to establish that the case for reciprocity has not been made in the view of the director general, and that view is one that I have accepted.

Lord Seebohm

My Lords, my family has been connected with Rowntree for several generations. Noble Lords may therefore be surprised to hear, perhaps, that I entirely agree with what the Minister has just said.

This is the second hostile bid that Rowntree has had. On the last occasion, which was 20 years ago, I was chairman of the Joseph Rowntree Memorial Trust, and together with the other two trusts we had a controlling interest in Rowntree. We received what looked like a very profitable bid from the General Food Corporation of America. As chairman of the largest trust I called a meeting in London of all the trustees of the three trusts. I asked if there was anybody in the room who wished to accept or go ahead with that bid. Not one hand went up. So the meeting took three minutes, and we turned the bid down. I did not receive one single letter of complaint from any shareholder, although in the short-term they sacrificed what appeared to be quite a large sum of money. In fact, the reverse happened: there were sighs of relief from most people.

My grouse is not about this particular bid being allowed to go ahead. Personally—I confess that I am a shareholder—I put my offer from Nestle straight into the bin. I believe that most ordinary shareholders did the same. What worries me is that the decision is not taken by all the small shareholders—and there is a mass of them in England and no doubt in the United Kingdom. I am sure that the majority of the workers who are shareholders will take the same view as I did. The tragedy is that decisions are taken by sharp-pencilled fund managers and not by those I would call the ordinary shareholders who ought to be consulted.

Instead of taking the short-term view previously we took the long-term view. In a very few years it became evident that if we had accepted the General Food Corporations's bid we should have done very badly compared to sticking with Rowntree.

Lord Young of Graffham

My Lords, I am grateful to the noble Lord. Perhaps I may make it clear to all in your Lordships' House that I am not today coming here and saying that the bid should or should not go ahead. That is a matter for the shareholders. I listened closely to what the noble Lord said. I can only say that there are no grounds in law and no reason for exercising my discretion to refer this bid to the Monopolies and Mergers Commission. Even if it were so referred, I suspect that the answer would be no different from the answer today, because there are no grounds on competition and there are precious few other grounds. The matter rests where it should rest all the time: with the shareholders.

Lord Boyd-Carpenter

My Lords, is my noble friend aware that many people regard it as rather odd that the noble Lord, Lord Williams of Elvel, should describe this bid as a kick in the teeth for this country? Is it not an indication of the confidence of overseas companies that they are anxious to invest in a British economy which they know is being well conducted? If that is a kick in the teeth, many of us would welcome many of them.

Lord Young of Graffham

My Lords, I do not think that I can add anything to what my noble friend has said.

Lord Moran

My Lords, perhaps I may first declare a very modest financial interest, in that my wife has a small number of shares in Rowntree, and a family interest. My wife is half a Rowntree. Her father, George Harris, was the man who picked up this company when it was almost on the rocks in the 1930s, built it up into a great British company and originated many of the brands such as Black Magic, Kit Kat and Aero which have made the company so attractive to foreign predators today.

Does the Minister think that it is in the national interest that bid-proof companies from outside the European Community—looking ahead to 1992—should be able to take over a major British company in this way? Would it not be more in the national interest to encourage a merger at this stage—if it is felt that only mega-companies can compete in the European Community—between Rowntree and the confectionery side of Cadbury-Schweppes?

Lord Young of Graffham

My Lords, that is not within my power. The days have long since gone when Ministers made those judgments. The 1960s and 1970s stand as testimony to the judgment of Ministers when they take these decisions. The noble Lord asked me whether this was in the national interest; or what we should do. I think the term "predator" is a difficult one. I am told that Nestle came to these shores in 1860 and has 10,000 employees in this country. I am told that it has 6,000 in Switzerland. What, therefore, makes a Swiss company and what makes a British company, I know not. It is a very difficult test to say that bid-proof companies should not be allowed to make bids. If one did that, and it became a worldwide position, it would stop mutuals, private companies and many of our other companies from making bids. It would become a very difficult test indeed.

However, one matter is clearly in the national interest. The economy of this country has rarely gone as well as it is going today. It is expanding all over the world. We are seeing levels of growth that we have not seen, certainly in my lifetime. That is not unconnected with the fact that we have probably one of the best competition policies in this country. Companies should expect that if their performance is not up to standard then there may well be predators after them; otherwise they are not worth, and would not be worth, saving.

Lord Campbell of Alloway

My Lords, does the Minister agree that it is not so much a question—unfortunately, perhaps—of the national interest but of the public interest as defined by statute. I think it is Section 84. If there are no grounds, as the Minister says, for referring the matter under this statute, then it follows that the Monopolies and Mergers Commission has no jurisdiction to deal with the matter. In those circumstances therefore is not the Minister wholly justified in refusing to refer? But what about the future?

Lord Young of Graffham

My Lords, we shall have to await what happens in the future; I cannot predict all possible occurrences. At the present time it is British companies that are buying up foreign companies. At this instance I am advised by the director general that there are no grounds for reference. It would become an odd world if, arbitrarily, people in my position decided that they would have to refer a bid on no grounds other than those that the director general had already advised.

Lord Stoddart of Swindon

My Lords, is the Minister aware that the board, the management and the workers of Rowntree will be devasted by his decision not to refer this bid? Is he able to give the workers in York, in Rowntree, the assurance that production will continue at Rowntree and that their jobs will be safeguarded?

Can he clear up this matter of whether there is fairness between ourselves and the Swiss companies? He has said today that it is perfectly possible for, and no Swiss law prevents, a British firm bidding for Nestle and Suchard. However, there is a general impression in this country that any bid made by a British company for either or both of those two firms would not be allowed? Can he say emphatically and definitely that if Cadbury-Schweppes, for example, bid for either or both of those companies it would be allowable and that no obstacles would be placed in its way?

Lord Young of Graffham

My Lords, I am very grateful to the noble Lord. On his point about assurances, perhaps he can help me by letting all noble Lords on his side of the House into this secret. The Government are incapable of giving assurances about jobs. They never have been able to; and they never will. The only assurance that can ever be given about jobs is by customers. As long as companies have products that sell, then jobs will be secure. The day that ceases to happen no government guarantee will ever secure jobs.

On the second point, I am afraid that the noble Lord did not follow exactly what I said. The test of reciprocity is whether there are any unfair conditions as such. There is no law in Switzerland which gives the government power to say whether bids can or cannot be made by foreign companies, just as there is no law in this country that gives me the power to stop bids merely because they are foreign. It is true that Swiss companies can, and many do, so construct their affairs, with the agreement of their shareholders, that they are bid proof. There are many British companies in the same position. Perhaps I may give a few examples: GUS; P? Savoy Hotels; and Trusthouse Forte. There are a considerable number who so construct themselves. Indeed, Sothebys came to the market only this week with 25 per cent. of the capital containing but 3 per cent. of the voting rights.

The difference is that we are an international market and far fewer of our companies so construct their affairs. The economy is the beneficiary because competition stops our companies being complacent. It is the spur of competition that has enabled these companies to win so many overseas markets in the last few years.

Lord Bruce-Gardyne

My Lords, in addition to the many cogent arguments that my noble friend has advanced against a reference in this case, is it not the fact that the monopolies commission in the past has indicated that it does not feel able to adjudicate over the issue of reciprocity of access to markets? If we have rules on reciprocity of access to markets, we have to do it—as in the case of financial banking companies—by government action and not by looking to the monopolies commission for that purpose.

Lord Young of Graffham

My Lords, I believe that policy is the responsibility of government and should be taken by government Ministers and not by a surrogacy through the Monopolies and Mergers Commission.

Lord Mishcon

My Lords, the House will have been interested as always in the observations of the noble Lord, Lord Campbell of Alloway, as to jurisdiction. Can the Minister clear up one point for the benefit of the House: Is it a fact that continuity of employment and security of employment in these critical days of unemployment is not in the public or the national interest to consider? Do the Government not think that the proper course is to ask for an assurance from a Swiss company concerning the security of employment in the future? Would the Minister regard it as objectionable if another government looking after their citizens did the same thing in regard to an English company that might be bidding?

Lord Young of Graffham

My Lords, the noble Lord makes a curious assertion that somehow the bidder company, whichever company it may be—and I have no means of knowing—is to invest £2,000 million in buying a company just to close it down. The only assurance anybody can give relates to customers and having products that sell. One of these companies will be voting a considerable vote of confidence in the United Kingdom by bringing in over £2 billion, unless the shareholders decide otherwise. Surely they are not doing that to destroy their investment, but to build it up.

Lord Mishcon

My Lords, I am sorry to persist but the Minister, who is always frank with the House, has not been frank on this occasion because he has not answered one question that I put to him. I was asking about national and public interest and employment, whether an assurance could not be sought and whether it was not right to seek it. May I remind him that, unfortunately, the past has shown that some people bid for companies to break them up and not to continue them?

Lord Young of Graffham

My Lords, whether they bid for them to break them up or not, the point that the noble Lord was making was whether employment would continue. The director general has advised me that the employment part did not necessitate a reference, and I accepted his advice. I would not seek to get an undertaking. From whom would I obtain such an undertaking? The noble Lord may have seen only today that other parties have entered the bidding and I have no knowledge who will end up, if anybody does, as the owner of Rowntree. But at the end of the day, even if an assurance was given, would it be worth more than an assurance from the customers?

Lord Mackie of Benshie

My Lords, will the Minister tell us when the criteria will change in referring bids to the Monopolies and Mergers Commission, because surely, if Cadbury-Schweppes were to bid for Rowntree or a merger were to be arranged, it would be quite wrong to base the share of the market on the British market when we are looking to an open market in Europe in 1992? Is he not being a little naive when he says that a company will not pay £2 billion and then close the concern down? It is all a question of what they are bidding for. Are they bidding for the brand names which are so successful, or are they bidding for the productive capacity?

Lord Young of Graffham

My Lords, it is not for me to say what is in the mind of any company bidding for Rowntree. We shall have to see what happens. Nor can I give any view about what might or might not happen in the hypothetical case of a bid from another company. In the event of other bids I have to wait until the Director General of the Office of Fair Trading gives me his advice and not consider the matter until that time. It is because I am in a quasi judicial position that I am inhibited from speaking about it, as I have been inhibited until today from speaking about this matter. The noble Lord asked me about Europe and 1992. Let me repeat what I said at the recent CBI annual dinner. The year 1992 is about competition. As our home market grows into the larger single market then we shall consider the effect on competition in the United Kingdom in the light of that larger market. In some areas we are already there, but in others there has so far been no impact.

Lord Cledwyn of Penrhos

My Lords, in the course of his replies the noble Lord has said that the justification for a bid such as this to go through would be that the British company concerned is badly run or unsuccessful. In order to remove any possibility of misunderstanding, will he confirm without question that Rowntree is an excellent and well run firm?

Lord Young of Graffham

My Lords, I find it very difficult to confirm something that I did not say. I am not aware of ever having said that. It is not my position to say whether any company in the land is an excellent company or not. That is not a judgment that I should make. Those days have long since gone. It is a judgment that the shareholders themselves will make in the fullness of time.

Lord Cledwyn of Penrhos

My Lords, did not the noble Lord say that if a British company could not stand on its own feet it must fall by the wayside or be taken over by what he described as a foreign predator company?

Lord Young of Graffham

No, my Lords. I should like to assure the noble Lord the Leader of the Opposition that I did not say that. What I said was that if we so insulate our companies from competition they would quickly get slack and lose their competitive edge. That is a different matter. What all companies realise, have continued to realise and will always realise is that if they fall by the wayside then they are likely to become prey to a predator, be it British or foreign. It is that which provides the spur of competition.

Lady Kinloss

My Lords, is the Secretary of State aware of what stress and sorrow his announcement will create in York? Is he also aware of how sad the men and women who work for Rowntree will be to hear him say that he cannot assure them that their jobs will be safe? It is sad not only for those who live in the city of York, but for those who live in the surrounding villages.

Lord Young of Graffbam

My Lords, I am grateful to the noble Lady, but it is not for me to say whether those jobs will be secure or not. I am aware of the great concern and feeling in York, which I suspect has been whipped up in many ways by an enormous speculation—

Noble Lords

No!

Lord Young of Graffham

I have repeated already that if anybody should buy this company that they will want to develop it. However that is not for me to say. I have had no conversations with any of the parties, nor do I intend to have any. My job is simple: Are there issues under the law of the land that require me to refer this bid? The answer is that I am assured there is none. I accept that advice and I come to your Lordships' House to confirm it today. The rest is up to the shareholders and to the market.