Take-over Bids (Hansard, 30 November 1988)

§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, the Government believe that it is in the interests of a healthy economy that the managers and shareholders of enterprises should be free to decide on whether or not to mount take-over bids, and, if so, on what financial basis they wish to do so.

§ Lord Mackie of Benshie
My Lords, I thank the Minister for that reply which I rather expected. Is he aware that there is a great deal of concern in a great many industrial and financial circles on this question and that it appears that if one is a butcher, a baker or a candlestick maker one cannot continue butchering, baking or candlestick-making without looking over one's shoulder at some predator from far away who wishes to take over one's business? That predator wishes to take it over on heavily borrowed money with large commissions promised. So much money is borrowed that large portions of the business have to be sold, whether or not that is good for the business. That must be worrying. If the Government really mean to increase productivity, then the managers of businesses should be able to manage.
I add one further point. I accept the argument that there may be firms which are so indolent that they deserve to be taken over. Will the Minister also say whether he is aware that these take-over bidders normally have to promise cash, because investors would be very wary of taking the shares of the company buying the business if that were not the case?

§ Lord Young of Graffham
My Lords, the noble Lord asked two quite distinct questions. If I may be rather abrupt, I should mention that I detected a slight shade of xenophobia when the noble Lord talked about overseas bids. I think it would be as well to remind all in your Lordships' House that in the year to mid-1988—in other words, to the last set of figures that I have available—United Kingdom companies acquired 557 overseas companies with a value of £14 billion. During that same period overseas companies acquired 62 United Kingdom companies with a value of £3 billion. I think that those overseas should be more concerned about the actions of our companies than we should about the actions of their companies.
306 As regards the other matter about leverage, that was examined with considerable care. My Blue Paper was published in the early part of this year. We concluded that we would not regard leveraging on its own as a ground for reference. The situation becomes extremely difficult if the Government were to set down standards of borrowing. If we set down standards there would always be those who would find ways round them. It is much more important that the banks and the shareholders who have to decide whether or not to accept the terms of the hid should he free to do so. In the long run that is by far the best policy.

§ Lord Barnett
My Lords, is the Secretary of State aware that I broadly agree with his reply? On the other hand, in the light of what the Chancellor said in his exhortation to individuals not to borrow so much money, would he care to give some advice both to companies and to individuals on whether borrowing at the present time, despite high interest rates, would be in the best interests of a capitalist economy?

§ Lord Young of Graffham
My Lords, those are two entirely different questions. I know that the noble Lord, Lord Barnett, was in the habit of advising companies what to do when he sat on the Front Bench. Alas, I have not picked up that habit.

§ Lord Carr of Hadley
My Lords, does my noble friend agree that when a takeover is made largely with borrowed money the risks to the shareholders of both companies, both of the bidding company and of the company being taken over, are increased when the new entity has a very high gearing ratio? Would it not therefore enable the shareholders of both companies to make a better decision if the bidder were required to make a proper statement of his business strategy leading to the take-over bid?

§ Lord Young of Graffham
My Lords, many business strategies are matters of commercial confidence. Not all bids of course are successful. I am not sure how much that really will change the attitude of shareholders. It seems to me that the economy runs best in a free market. I know there has been considerable concern about leverage bids. Those emanate from practices that have occurred in the United States of America. I have also noticed that sentiment has moved against that practice recently. It may well be that that practice will not occur so frequently in the future.

§ Lord Taylor of Gryfe
My Lords, is it not the case that in a very notable maiden speech in this House yesterday the noble Lord, Lord Alexander of Weedon, explained the attitude and procedures of the Takeover Panel and of the Monopolies and Mergers Commission dealing with such matters? Will the noble Lord commend to the noble Lord, Lord Mackie of Benshie, and other noble Lords who are interested, a reading of that particular contribution?

§ Lord Young of Graffham
My Lords, it is my recollection that the noble Lord, Lord Mackie of 307 Benshie, was in the House yesterday when the noble Lord, Lord Alexander of Weedon, made his maiden speech. I am sure that the noble Lord, Lord Mackie, listened closely to every word that my noble friend said.