§ 3.30 p.m.
§ Lord StrathclydeMy Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Strathclyde.)
On Question, Motion agreed to.
House in Committee accordingly.
§ [The LORD ABERDARE in the Chair.]
§
Lord Williams of Elvel moved Amendment No. 244ZA:
Before Clause 97, insert the following new clause:
("Merger references. In section 64 of the Fair Trading Act 1973 (merger situation qualifying for investigation) after subsection (2) insert—
(2A) The Secretary of State shall make a merger reference to the commission unless he is satisfied that the merger situation will not operate against the public interest."
)
The noble Lord saidI beg to move this amendment standing in my name and that of my noble friend Lord Peston. It may be for the convenience of the Committee if I also speak to Amendments Nos. 244ZD and 245J. This group of amendments deals with what is known as the "onus of proof". Perhaps I may remind the Committee of the present situation. When a company wishes to merge with another company, the Director General of Fair Trading has to use his own resources to find out whether the merger is taking place. If the proposed merger comes within the scope of the Fair Trading Act 1973—in other words, it is more than a certain amount in value of net assets or a certain amount in terms of market share of the product—the Director General of Fair Trading may study the merger. He then has the duty, if he studies it, to recommend to the Secretary of State whether or not he thinks that the merger should be referred to the Monopolies and Mergers Commission.
The system as at present constructed does not really even represent neutrality in terms of the public interest. It represents a philosophy which says that mergers should take place unless there is a clear balance against the public interest initially and subsequently after the report of the Mergers and Monopolies Commission. In 1978 the Green Paper on merger policy recommended a shift from this bias in favour of the merger, if I may put it like that in simplistic terms, to a position of neutrality. I am bound to confess that I was never quite clear how that shift could be achieved in law. That policy was overtaken by the events of May 1979 when the Government changed, and the policy was then abandoned. So the neutrality proposition put before the country in the Green Paper in 1978 did not come into operation.
We on these Benches have argued for some time that mergers should be scrutinised much more carefully than they are at the moment. The question which we ask ourselves—as indeed the Government have asked themselves—is: are mergers really successful? Where is the record? The record is set out in a document produced by the Department of Trade 1146 and Industry following the Green Paper of 1978 which was called A Review of Monopolies and Mergers Policy. The later document was called Mergers Policy to which there is a very interesting annex which I wish to summarise for the Committee because it gives a very clear statement of the current empirical analysis of whether or not mergers are successful.
Annex E of the document entitled Post Merger Performance—the Evidence is pretty firmly of the view that the evidence on post-merger performance that has emerged since 1978 supports the earlier findings of disappointing or inconclusive performance. It goes on to say that the consistency of the results of the various academic studies which are summarised in the annex and the wide range of approaches used tend to increase the robustness of the findings of the 1978 Green Paper. That paper said specifically that in roughly half the cases examined the merger had resulted in an unfavourable or a neutral effect on the profitability of the companies concerned. So the 1978 analysis was that it was a toss of the coin. If one tosses a coin, it comes up heads or tails and 50 per cent. of the time on average it should come up one or the other. The DTI has confirmed the 50 per cent. rule in its latest document, so we cannot say with any degree of confidence that any particular merger will do anything for the economic health of the nation.
Given that, it seems to us that we must look a little further at the motives for mergers and takeovers. In pure economic theory, the motive is very simple. It is designed to maximise the return on the assets of the shareholders. No doubt that is the theory which we shall perhaps be hearing from certain noble Lords on the Benches opposite. The fact of the matter is that motives for mergers and takeovers are rather more complex than that. As the 1978 Green Paper found out and as we know from experience, takeovers are not necessarily launched simply in order to maximise the return on assets, the return to shareholders. They are not necessarily launched for the benefit of the employees working in a particular company. Frequently the effects are that they are against the interests of employees. However, I do not wish to get into that argument at the moment.
There are no statistics on this because, although by definition there can be no statistics, frequently takeover bids are launched by companies whose boards of directors believe that they want to expand their business in whatever way is most favourable to them. Frequently that is the result of having a rather high priced share which they wish to use as currency in order to make an acquisition.
These motives which are perfectly human and understandable do not necessarily lead to operations in the public interest. I put it at its mildest. Since the 1978 Green Paper, the Director General of Fair Trading himself has propounded the view that the onus of proof should change. Rather than the Government having to show, in whatever form it is—the director general, the Secretary of State or the Monopolies and Mergers Commission—that a particular operation is against the public interest, it should be for the company launching the bid to show that it is in the public interest. Otherwise it should be 1147 stopped. If the director general with all his great experience in these matters believes that then the amendment is on solid ground.
Amendments Nos. 244ZD and 245J address themselves essentially to the same problem. If it is true that the Secretary of State should be totally convinced that a merger is in the public interest, it must therefore be true that the director general should also be totally convinced in making his recommendation to the Secretary of State. Equally, turning to the provisions in the Bill on notifications, we believe that it is also the case that the public interest should be demonstrated prior to anything happening.
In essence, these amendments would take us a little further towards what we regard as a sensible way of controlling what is known as "merger mania". We believe that it is up to companies to demonstrate that what they are doing is in the public interest before what they are doing is allowed. These are relatively modest amendments. They do not make any enormous changes. If companies are convinced of what they are doing, they should be prepared to go on the record and persuade the director general and the Secretary of State that what they are doing is in the public interest. I beg to move.
§ Lord Lloyd of KilgerranThe Committee will be grateful to the noble Lord, Lord Williams of Elvel, for an interesting history of mergers and the interest of the public in relation to these matters. I certainly support Amendment No. 244ZA which merely states that merger references,
will not operate against the public interest".The words "public interest" are defined in Section 84 of the Fair Trading Act 1973.Amendment No. 244ZC seeks to make the position mandatory—
§ Lord Williams of ElvelI apologise to the noble Lord. I did not speak to Amendment No. 244ZC. I spoke to Amendment No. 244ZD. I recognise that the groupings in this Bill are extremely complex because of the numbering of the amendments. I hope the noble Lord accepts that I shall speak to Amendment No. 244ZC when we come to it.
§ Lord Lloyd of KilgerranI am grateful to the noble Lord. I have in my hand the Companies Bill groupings. Amendment No. 244ZC is grouped with Amendment No. 244ZA. However, I understand we shall have the pleasure of hearing the noble Lord speak on Amendment No. 244ZC later.
Amendment No. 245J again indicates that mergers should be in the public interest. Therefore I support that amendment. The noble Lord also mentioned Amendment No. 244ZD. I am in some difficulty on that amendment. I shall be interested to hear what the Secretary of State says about it. Amendment No. 244ZD states,
and such person shall demonstrate to the Director that the merger situation is likely to be in the public interest".As a lawyer I have some difficulty as regards how such a person could demonstrate that the merger,is likely to be in the public interest".1148 It is very difficult to prove that something is,likely to be in the public interest".I should have thought that to include this provision would only mean a lengthening of the proceedings and make them more difficult to carry out than in the past.
Lord MorrisThe noble Lord, Lord Lloyd of Kilgerran, has just informed the Committee, much to my surprise, that the words "public interest" are defined in Section 84 of the Fair Trading Act. All I can say is, would that they were. The section itself refers to the public interest. It is around this particular section that all the difficulties revolve. The section states that it is not only the power but the duty of the Monopolies and Mergers Commission to take into account any matters that appear relevant to it and which affect the public interest. The section further states that the commission shall have regard to the desirability of various competition points. It is on that particular issue that I want to speak.
I give the Committee an example of how the Monopolies and Mergers Commission operates or, as some people think, does not operate. I give the Committee the example of the Minorco Societe Anonyme bid for Consolidated Gold Fields. The Monopolies and Mergers Commission deemed the merging of the platinum interests of both companies not to be against the public interest. The EC considered the bid was in the public interest but ruled that the bid should not proceed unless Minorco divested itself of an interest in a particular asset which is at the moment in the hands of Consolidated Gold Fields. That asset was a mine in the process of development for the production of platinum.
This kind of conflict can so often occur if the Monopolies and Mergers Commission keeps strictly to the competitive effects within the United Kingdom and does not look wider than that. The other problem is that I do not believe that the interpretation by Her Majesty's Government of Section 84 of the Fair Trading Act is consistent with the Act itself. In my view it is clear that in any sensible interpretation of that particular section, they are bound to take into consideration the kind of matters which were raised so elegantly by my noble friend Lord Erroll of Hale at Question Time some days ago. On that occasion he asked my noble friend the Secretary of State for Trade and Industry whether it was not central to the public interest that those who seek to gain control of British companies which have been operating for over 100 years should be seen to be squeaky clean. I believe that to be central to the public interest.
One must remember that there have been not one or two but three departmental investigations by virtue of the Companies Acts and other Acts with regard to these matters. Therefore, I believe it is very important that the Monopolies and Mergers Commission does not restrict its consideration to narrow competition points alone. I believe very strongly that the amendments that have been tabled so reasonably and as usual so ably by the noble Lord, Lord Williams of Elvel, can help these matters considerably. I ask my noble friends to consider very carefully what he had to say.
§ 3.45 p.m.
§ Lord Lloyd of KilgerranThe noble Lord suggested that I had misunderstood Section 84 of the Fair Trading Act 1973. Perhaps the noble Lord has not read that section accurately. Section 84 as it stands has the words "public interest" alongside it in the margin. Later, I shall table some amendments to extend the scope of the public interest in the Bill. Section 84(1) states:
In determining for any purposes to which this section applies whether any particular matter operates, or may be expected to operate, against the public interest, the Commission shall take into account all matters".The matters to be taken into account are set out in the paragraphs to subsection (1). The matters against which the public interest must be considered are contained in five paragraphs. Although the section does not define the public interest as consisting of X, Y and Z, nevertheless, in my view it is quite clear, as the section stands, what the words "public interest" mean in the context of the Fair Trading Act 1973. However, I submit that that definition, as I call it, is not adequate in the modern context of merger situations. I shall table amendments later to deal with that aspect.
§ Lord JayI also wish to support the amendments spoken to by my noble friend Lord Williams of Elvel. They place a more positive onus of proof on those advocating mergers. Experience is on the side of my noble friend. In the days when Mr. Charles Clore, as he then was, invented takeover bids, it used to be argued that mergers whether hostile through takeover bids, or amicable, could be beneficial to the public interest because they would lead to better use of the assets owned by at least one of the companies involved in the merger.
It is much harder to take that view today. I say that in the light of experience gained over the past 30 years. I have personally observed a great many takeover bids from more than one angle. I find myself moved to the belief that in a great many cases the motives are not really increased efficiency; they are due to one of two factors—either a desire to suppress, or at least modify, competition, or a tendency towards empire building on the part of the chairman or chief executive of a company who wants to believe he is the head of an even grander concern than he was before. I do not say that that is true of all company chairmen but I think that it is true of some of those who launch takeover bids.
The strongest evidence in relation to the motive of suppressing competition seems to me to be that in one case after another one can observe that it is companies producing similar or competing products which come together under one guise or another. I think that the fashionable term at present is joint enterprise. In effect, they cease to compete with each other.
If there was any substance in those suspicions one would discover very little evidence that the mergers and takeover bids which have occurred in the past 25 years have achieved positive benefits for the economy as a whole. As my noble friend pointed out, the various inquiries into the issue—which is difficult to demonstrate either way—have in almost every case 1150 shown that there is little evidence that such benefits have occurred.
In addition, reading the national press both here and in the United States one cannot help feeling that the amount of time, energy, ability and effort given by chairmen, chief executives and other members of large and important companies might be better employed. They should be enhancing the efficiency and enterprise (as the noble Lord the Secretary of State likes to call it) of their own concerns rather than indulging in long-drawn-out, elaborate and dubious battles with one another.
All those reasons point to support for the amendment moved by my noble friend.
§ Viscount CaldecoteI have considerable sympathy with the principle behind the amendment. As my noble friend the Secretary of State will know, I attach great importance to the strengthening of our manufacturing base. Any merger which weakens the manufacturing base is, I believe, ipso facto against the public interest.
I am particularly interested in manufacturing companies. Agreed mergers of manufacturing companies usually result in a strengthening of the manufacturing base because the two parties involved agree that a merger will improve their strength in a particular field. On the other hand, opposed mergers too often are more concerned with making money than with creating wealth through the strengthening of the manufacturing base. It is interesting and relevant to note that there are few opposed mergers and takeovers in Germany and Japan, which are our two fiercest competitors in manufacturing industry and cause us considerable trouble in relation to our balance of payments deficit in manufactured goods.
Therefore I have considerable sympathy with the principle behind the amendment. I very much hope that my noble friend the Secretary of Slate will give careful and sympathetic consideration to what has been said by other noble Lords, and to what I have said. I hope that he will consider the amendment, which may need further amendment to get it right and to apply the principle in exactly the right way. I hope that my noble friend will give particular attention to the point about strengthening the manufacturing base. I hope that he will not turn down the principle of the amendment at this stage but will undertake to bring something back in the form of a more carefully thought out amendment at a later stage.
§ Baroness Carnegy of LourI have been a member of the sub-committee of your Lordships' European committee which has been looking at the subject of mergers in the European context. The sub-committee has not yet reported to the main committee. In the course of our discussions it has become clear that the Community view on merger matters is that as far as possible the criterion on which a decision should be based is that of competition. I believe that politics should be kept out of the matter. As soon as one begins to consider what is the public interest and to require those proposing a merger to prove that it is in the public interest, one enters the political field.
1151 It is interesting that it is pointed out in an OECD report which was brought to the attention of the sub-committee that the competition criterion is the only or main criterion applied in Germany, Japan, the USA and Canada. This country is one of a number of countries which take into account other aspects of the effects of mergers.
I should have thought that what the noble Lord has suggested goes in the opposite direction from the rest of Europe. I believe that it would politicise decisions and damage the clarity of the competition criterion.
§ Lord EzraI should like to support the remarks of the noble Viscount, Lord Caldecote. I think that we should be warned by the experience of the United States whose practices in relation to mergers are tending to spread here. The motives for many recent mergers have been of a purely financial nature leading to the breaking up of the companies taken over for no apparent good other than the benefit of those who have manipulated the financial markets. I very much trust that such practices will not spread either to the United Kingdom or to the Community.
§ Lord ReesAs one would expect, the amendment was moved very attractively by the noble Lord, Lord Williams of Elvel. Nonetheless, I believe that it is misconceived.
I think there is a general principle that the operations of the market-place should not be retarded by the Government unless there are clear and stated grounds for so doing. The practical consequences of the amendment would be that the government of the day would have to be ready to clear any and every takeover bid that was mounted in the market-place. A moment's reflection will show what an intolerable burden that would place on the government of the day and the degree to which it would clog the market-place. On practical grounds the amendment strikes me as misconceived.
Secondly, as a point of principle I believe that the Government should interfere in the operations of the market-place only in certain very clearly understood and defined circumstances. As it happens, I have had to consider takeovers in two capacities: as a Minister of the Crown serving, I am happy to say, with my noble friend Lord Cockfield in the then Department of Trade, and also as chairman of a company which was under threat. I am glad to be able to say that the threat was successfully resisted. However, that has made me appreciate the force of the argument that a great deal of management time can be dissipated, possibly to no great purpose, in resisting such threats. Therefore I am sensitive to that argument.
However, my experience in government considering a public interest case leads me to think that that is a very elusive, not to say subjective, test. It is difficult to say in any given situation what is the public interest. It is easy to advance that kind of argument. The chairman of a company which is under threat will inevitably have recourse to such an argument if he can, and sometimes the arguments will be a little specious.
In one of the cases in which I had to adjudicate as Minister I was overwhelmed with evidence from local 1152 authorities and trade unions about the impact on the morale of the workforce, on the local economy, and so on. I have to say, not with any particular pride, that I had to take a robust view and overrule the views of the majority of members of the Monopolies and Mergers Commission in that case. Luckily on that occasion there was a strong minority report by the chairman of the commission, so that I was somewhat fortified in my decision.
I should like now to reflect on the outcome of that case. I shall not mention names. The workforce settled down perfectly happily under the new ownership. As far as I could judge, the local economy was not fatally affected. It is true that the demand for the products of that company dwindled, but for reasons quite unconnected with the takeover. With the advantage of hindsight, I suspect that the only parties who were unhappy about my decision and the outcome were the predators who took over the company. However, that case led me to be rather sceptical about the value of such an elusive test as that of public interest.
That said, I recognise that perhaps the advantages at present lie too far in favour of the predator. That problem should certainly be addressed, and we shall perhaps have an opportunity to do that when we consider other amendments. I do not say that the market works absolutely perfectly in that situation. Equally, I concede that there must be some cases in which there is a clearly observable public interest that the government of the day would ignore at their peril. I merely suggest that I do not believe that the amendment would resolve, either in practice or in principle, such a problem. It would have the consequence of overloading the government of the day, involving them politically in virtually any takeover of which one might care to conceive and clogging up the market and weakening what is the ultimate discipline on ineffective management. I hope that the amendment will not commend itself to the Committee.
§ 4 p.m.
§ Lord PestonIn supporting the amendment, perhaps I may contribute one or two words on the nature of competition. I must say that, for me, competition is the central issue here. The locus classicus on this matter is Adam Smith's The Wealth of Nations, in which this subject was first properly discussed and from which all important subsequent work derives
Essentially, Adam Smith considered the question of competition as relating to the number of sources of independent economic power in our system. Therefore, prima facie, any mergers that take place are anti-competitive; they simply reduce the number of sources of economic power. If one thinks in the tradition of Adam Smith to the present day and one is in favour of competition one would take the view that the starting point should be a presumption against mergers. Essentially, according to modern thinking, there is a little more to the matter than Adam Smith suggested some 200 years ago; that is why one has the list of criteria. Although I am sympathetic to the noble Baroness, Lady Carnegy, in 1153 saying that competition is the central idea, I must make two points. If competition is the central idea, this is the amendment to support because mergers lead to a decline in competition. Therefore, to wish that no politics or judgment were involved is to wish away certain other aspects of reality. That is why the other criteria are there.
I am bound to say that those people who genuinely believe in competition must ensure that, at the very least, the balance of proof should be correctly balanced. As the Committee knows, I go further than that because, despite my general political views, I am a true disciple of Adam Smith. But I do not seek to persuade Committee Members of that this afternoon; I know that, if one believes in competition, balance is the minimal position that one can adopt. We can think of it in terms of the risks involved. Essentially, in all those matters, one cannot get everything 100 per cent. right. There are two kinds of risks. Does one have a criterion, the effect of which—having got most things right—would be to let through some mergers that should be stopped, or a set of criteria which stops some mergers that should be let through? Our concern is that we are letting through some mergers that should be stopped, but I freely admit that if one moves to a more balanced position, some mergers will be stopped that should be let through, as we shall not get everything right.
I wish to make two other points. I do not see the point about bureaucracy that the noble Lord has just made because—as the noble Viscount, Lord Caldecote, has said—in accepting this measure or some version of it the Secretary of State would simply send a signal to the market as to how the system should operate. He would not necessarily—and, in my opinion, should not necessarily—invent a new bureaucracy or become execessively involved. I therefore take the point about bureaucracy, but I do not see it as a necessary consequence of moving in the direction that my noble friend Lord Williams mentioned.
§ Lord ReesI am most grateful to the noble Lord for giving way. As he has referred directly to my point, I hope that he will allow me to put this proposition: surely, in any contested takeover, the chairman of the company under threat would automatically request one of his friends in either House to ask the Minister of the day whether he would state on what grounds he believes that the public interest is not involved in that particular case.
§ Lord PestonAs I, like the noble Lord and other noble Lords, am not usually in charge of companies or involved in asking significant friends to ask Questions in the House, I am already taken aback that anyone would think that that was a proper way to behave; but let us leave that on one side. I do not see how that differs from the present state of affairs in which I gather that this sort of thing happens in any case. That is not my point. I believe that, with the criterion slightly changed, the Secretary of State can still stay above the battle and not involve himself with bureaucracy, but I accept that things are more difficult for the company concerned. It has to 1154 demonstrate something more positive. I am bound to say that that is the whole point of the amendment.
Perhaps I may just make one point about the workings of markets generally. Let us make the assumption—although it is not quite right—that the market in financial assets is perfect and operates in a satisfactory way. I do not accept that, but let us leave that point on one side. The real point is whether the criterion of maximising the return on assets is always the criterion that maximises the national economic welfare. So long as the market for goods and services remains competitive, one accepts that the free working of financial markets will lead to the correct outcome. But the whole point is that, if the operations are merger operations, the markets for goods and services become less competitive and the signals sent to the financial markets do not maximise the national interest.
To go back to my point, I accept and understand the argument. One of the points that puzzles me is that I understood—and perhaps the Secretary of State will repeat that statement—that the Government were committed to competition as regards the private sector, as I and my noble friend Lord Williams are. However, given the acceptance of the competition criterion as dominant—we shall come to the other criteria in a moment—I do not understand why, for years, the balance criterion has not been the obvious one. That is not a political point. I am not convinced that I could have talked a Labour Government into this either. The other criteria need to be explained. I leave the matter at that point. If one wants competition, it seems to me that one should demonstrate that, where competition prima facie is reduced, the burden of proof must be put forward positively.
§ Lord WolfsonIt seems to me that there is already a comprehensive body of legislation dealing with acquisitions and takeovers and I am sure that the noble Lord, Lord Williams, does not wish every acquisition to be referred to the Secretary of State; otherwise, he would be more harried than he already is.
I should like to refer to one or two points. When one talks of competition, I do not think that it is simply a question of United Kingdom competition; one must think in terms of European and international competition. As we all know, the world is getting smaller and competition 'lows across borders as free trade increases. Directors are not economists. They are not there to think of the national economy, although I am sure chat they do. They are there to manage their own firms which, in the end, will benefit the national economy. If they were economists, I believe that their record would be considerably worse than the 50&–50 that has been mentioned with regard to mergers. That point should be borne in mind.
I have not heard the word "shareholders" used. Surely the people who own companies should have some say in whether their companies are bought or sold. Are they receiving enough information at the moment? Are fund managers too powerful in that respect? Should they be required to refer to their own shareholders as to whether they should accept bids or 1155 not? The question of dawn raids, and so on, comes to mind.
Those are perfectly valid points, although I have not heard them raised. I do not think that more legislation will help, but I believe that individual shareholders could be consulted through fund managers more than they are at present. Perhaps my noble friends on the Front Bench will give thought to that.
§ The Secretary of State for Trade and Industry (Lord Young of Graffham)The noble Lord, Lord Williams of Elvel, has referred, with what I thought was an air of rather wistful nostalgia, to the review of merger policy undertaken in 1978 by the government with which he and his noble friend Lord Jay were associated. It is interesting to note that, until then, the legislation that we are still using had been operated quite satisfactorily by the government. Incidentally, roughly the same proportion of qualifying mergers were referred to the MMC then as now.
The 1978 Green Paper only raised the possibility of a more neutral approach to mergers. It did not go so far as requiring positive benefit to be shown before a merger could proceed, which is what the noble Lord now wants. It is ironic, when thinking about markets—and even the Opposition are prepared to admit that markets have some advantages—that they want to take mergers out of the hands of the market. My noble friend Lord Morris has some interesting amendments to come. Perhaps some of the points he has raised can be dealt with then. However, he should not judge all competition policy on the strength of one decision.
The Monopolies and Mergers Commission can look only to the competitive effects within the United Kingdom because that is what it is concerned with. Neither the Director General of Fair Trading nor the MMC considered platinum to be of importance to the United Kingdom market but it may well be that the commissioner, Sir Leon Brittan, had other views. His scope within Europe was different; he came to another view. That demonstrates the double jeopardy when we have some mergers being looked at here and in the Commission. I am hopeful that before the year is out we may be able to see that satisfactorily resolved.
Perhaps I may say to my noble friend that the "squeaky clean" test is particularly difficult to operate. There have been a number of investigations, the results of which have not as yet been published. It would be quite wrong to draw any conclusions from the mere fact of investigations.
Perhaps I may also draw to the attention of my noble friend Lord Caldecote and the noble Lord, Lord Ezra, that 90 per cent. of all bids in the United Kingdom are agreed bids. Only 10 per cent. are hostile bids. I know that my noble friend is as ever concerned with manufacturing. But I fail to see how insulating and protecting boards of manufacturing companies from bids will either strengthen manufacturing industry or sharpen their competitive edge. Indeed I fear that it may do precisely the opposite. The result of that protection is that we would see a less competitive element rather than a more competitive element.
§ Viscount CaldecoteI never suggested for one moment that there was any question of protecting inefficient management from bids. I suggested only that the public interest is better served if a merger increases the strength of our manufacturing base rather than decreases it. There are very good criteria for considering that. My noble friend can ask the companies, for instance, whether their share of the market will be increased or decreased by the merger.
§ Lord Young of GraffhamI should remind my noble friend that at the end of the day the only decision as to whether or not the share of the market has increased is not made by the boards of companies but by their customers and the demand for the goods, and the quality of the goods, that they manufacture and hopefully sell. I have the greatest admiration for the MMC but I should hate to think that it had to decide the likely future sales of any product. However, my noble friend is entitled to his view. I suspect that he has as much chance of converting me as I have in the long run of converting him.
§ Lord EzraSince the noble Lord referred to me, perhaps I may say that the point I was raising was the fear that some of the practices in the United States at the moment—the high leverage bids and the liberal use of junk bonds—would be most undesirable here. What does the noble Lord feel about that?
§ Lord Young of GraffhamThat is another question, but I agree with the noble Lord. I have some difficulty in deciding exactly what a junk bond is. I suspect that it is something that is always recognised in hindsight rather than beforehand. However, I am happy to say that the tide has turned in the United States and the prevailing fashion for that type of operation seems to have passed. Certainly it does not seem to have come to the United Kingdom in anything like the same shape or size as it has taken place in the United States.
The noble Lord, Lord Peston, admitted a conversion to Adam Smith. I fear that the conversion was caused by a misreading of Adam Smith since his definition of competition and his support of it would lead to a static market. I suspect that would in fact lead more to a decline in competition than anything else. The contention of the noble Lord is based on the idea that there is only a stated number of sources of supply.
§ 4.15 p.m.
§ Lord PestonI hate to educate the noble Lord with respect to the history of economic doctrine. However, I must first say that I was both aware of and a supporter of Adam Smith before the noble Lord knew anything about economics, if I may be so acerbic. However, the essence of Adam Smith is precisely his emphasis on the dynamics of competition. Other economists later may have slightly lost sight of that. But Adam Smith saw the market as a living, dynamic thing in which, when people got together and merged, those essential dynamics were destroyed. That is exactly what this debate is about.
§ Lord Young of GraffhamI shall say without any fear of disagreement from either side of the Committee that I know absolutely nothing about economics, even today. I shall not therefore contest that matter. I say it as a matter of some pride! I hope that the noble Lord, Lord Peston, will admit that there is a certain incentive to boards of directors which fear that they might be in receipt of an unwelcome bid at least to sharpen their performance. Insulation from that is not what our economic life should be about.
I say to my noble friend Lord Rees that I took great comfort from his history of a robust decision. I confess that I have not as yet had any occasion to overrule the MMC but the history he recounted will give me courage should the occasion still arise, as indeed did the robust history of the merger that he described and fought off.
I hope that my noble friend will admit as a result of that experience—it might well have taken up a considerable amount of time and energy, but I am willing to venture a not small wager—that at the end of the day the company was in rather better shape than it was before. The noble Lord can confide that to me on another occasion.
The amendments to which the noble Lord, Lord Williams of Elvel, has spoken today would require the Secretary of State for the time being, in deciding whether to refer a merger to the Monopolies and Mergers Commission, to assess the public interest effects of the merger. He would be required to make a reference unless satisfied that the merger was not against the public interest. The duty of the Director General of Fair Trading to advise the Secretary of State on reference decisions would naturally be amended accordingly.
These amendments would mean that there was a presumption in favour of reference; the Secretary of State would have to be satisfied that there would be no adverse effects before he could clear a merger without a reference. There is a subtle but important difference between that and what happens at present, where I make a reference when I think, having had the director general's advice, that the merger raises issues of public interest. In practice this means that I want to be positively satisfied that there are such issues before I make a reference.
At this point I am reminded of the contribution of my noble friend Lord Wolfson who was the first and only Member of the Committee to mention the owners of companies—the shareholders.
§ Lord Williams of ElvelI did.
§ Lord Young of GraffhamI apologise to the noble Lord, Lord Williams. However, my noble friend Lord Wolfson mentioned shareholders. In my position I have to balance a great number of different interests. I wished to ensure that all Members of the Committee were aware that the interests of shareholders were very truly one of those.
Perhaps I could briefly remind the Committee what happens at present. The Director General of Fair Trading, and no one else, learns of a merger. He then calls the parties and hears their views and the 1158 views of others, and then advises me on whether or not it should be referred to the Monopolies and Mergers Commission. Only if the Monopolies and Mergers Commission finds that a merger is likely to act against the public interest does the Act give me the power to stop it or to impose conditions. Noble Lords will find this process admirably summarised in the booklet Competitive Policy—How it Works which I issued and circulated widely towards the end of last year.
It is central to our view of mergers that there should have to be a good, positive reason before a reference—with the work and expense which that involves for firms as well as the authorities—can be justified.
Mergers are a normal part of the workings of the market. As I said, over 90 per cent. of the mergers in this country are by agreement. On the whole they are beneficial in the mechanism they provide for assets to be reallocated so that they are put to the most productive use; and in the spur which they provide to incumbent management to put those assets to the best use, so that firms adapt and grow. This view was confirmed by our thorough review of merger policy, the conclusions of which were set out last year in my department's Blue Paper.
The existing discretionary power to refer mergers where there are concerns about their effects is sufficient safeguard that those few cases which may be against the public interest will be picked up and subjected to a thorough scrutiny. It seems to us evident that it is any loss of competition as a result of a merger which is most likely to be against the public interest. That is because it is unlikely to be against a firm's own interests—at least in the short term—if competition is reduced. In other respects, what is good for the firm will almost always be good for the economy. We would not regard matters such as employment, regional development or research and development as typically matters where, in acting in their own interests, firms will damage the wider public interest, although exceptionally they may.
For the time being the present reference power leaves a large measure of discretion to the Secretary of State. That itself causes problems for some people. It is in the nature of a discretionary power that there cannot be absolute predictability of reference decisions. Nevertheless, given the guidance we have put out, I believe that those concerned often have a pretty good idea of which cases are likely to raise problems. Their uncertainty could only be reduced further by losing flexibility. That would probably mean more mergers being referred, because it would deprive us of the ability to clear mergers which increase concentration, but where the structure of the market means that this does not cause a loss of competition.
The fact is that of the almost 400 mergers and prospective mergers looked at by the Office of Fair Trading in a year, only about 8 to 12, or roughly 3 per cent., are referred to the Monopolies and Mergers Commission.
The noble Lords, Lord Williams and Lord Peston, say that this is only a modest change. The presumption in favour of reference would entail a 1159 more stringent examination at the pre-reference stage. That concerns the 400 or so references for merger which are looked at first. It could also mean 40 or 50 cases a year going to the MMC. Apart from the additional costs to the taxpayer, it would, more importantly, increase the burden on firms by subjecting them to unnecessary trouble and delay.
Noble Lords opposite would argue that mergers should be subjected to this critical scrutiny, because they are inherently to be distrusted. For their own good and for the wider public good, those whose business is running firms, and whose capital is invested in them, should be impeded from legitimate business activity.
The noble Lord will object that the evidence is that mergers do not work, that they are against the public interest. There are several problems with this argument. First, it assumes that those running and investing in businesses are not themselves capable of weighing up the available evidence and taking appropriate decisions. Secondly, it would deny them the right to make the wrong as well as the right decisions. After all, it is they who most directly stand to lose from the wrong decision. Thirdly, even granted that they may make the wrong decisions, it assumes that those of politicians or bureaucrats are somehow better. Finally, it ignores the very real spur given to incumbent management by the threat of takeover.
Noble Lords opposite would argue that mergers should be subjected to this critical scrutiny, because they are inherently to be distrusted. For their own good and for the wider public good, those whose business is running firms, and whose capital is invested in them, should be impeded from legitimate business activity.
The noble Lord will object that the evidence is that mergers do not work, that they are against the public interest. There are several problems with this argument. First, it assumes that those running and investing in businesses are not themselves capable of weighing up the available evidence and taking appropriate decisions. Secondly, it would deny them the right to make the wrong as well as the right decisions. After all, it is they who most directly stand to lose from the wrong decision. Thirdly, even granted that they made the wrong decisions, it assumes that those, of politicians or bureaucrats are somehow better. Finally,, it ignores the very real spur given to incumbent management by the threat of takeover.
Our emphasis has been on the need to let businessmen get on with running their businesses. Merger controls are necessary to preserve competition, but they should themselves give the minimum impediment to the market mechanism. My noble friend Lady Carnegy of Lour pointed out very appositely that Japan, Germany and other countries have adopted competition as the principal spur for looking at mergers' mechanisms. We have looked at this long and hard over the years and competition has been the dominant way in which we have regarded all merger policy during the years of this decade and certainly since 1984.
The measures in this Bill are designed to improve procedures, enabling the authorities to do their job 1160 while otherwise impeding business as little as possible. The prenotification system in particular is directed to this end.
We are also improving procedures in ways not requiring statutory change. In particular, the time taken by the MMC to produce reports has been reduced from six months to three months in most cases. We are also concerned to minimise delays before reports are published and my decision announced. However, there are certain procedures to be gone through which cannot be unreasonably curtailed in fairness to those concerned with the report and to ensure full consideration of any action to be taken.
First, under the Fair Trading Act I have a duty to exclude from the text of a published report material which it would be against the public interest to publish. I must therefore consider requests from the principal parties, or from third parties, for excisions to be made from the published text. Some of those same parties may already have asked the MMC to make excisions, on the grounds of commercial confidentiality, from their evidence as presented to me in the report, but I have a statutory duty to consider separately arguments made on public interest grounds alone.
Obviously much depends on the scope and diversity of the excisions sought. Some of the delay should be reduced by an amendment in the Companies Bill which will permit excisions of material which would damage private interests unless it would be in the public interest to disclose the material at issue. This amendment should allow me more flexibility to accede to reasonable requests.
To speed matters generally, I would urge all commercial parties who wish to make representations to my department to do so swiftly. Once the MMC has advised them on the terms on which their evidence will come forward, commercial parties should immediately make any further representations to me.
The second reason why time is needed before MMC merger reports can be published is that I must consider any advice which the Director General of Fair Trading wishes to give me. Clearly this can be a major exercise; for example, when the MMC concludes that a merger would be against the public interest unless certain conditions are fulfilled. In some cases the director general will need to consider the possibility of securing undertakings on the future conduct of the businesses. He must look carefully at how those undertakings might be framed and policed. In other cases the director general might need to think about the detailed terms of divestment. All this takes time. It is important that I receive considered advice from the director general before I come to my own view, taking his advice into account, on the appropriate decisions in each case. I am sure noble Lords will appreciate that it is inevitable that the length of time the director general needs to advise must vary from case to case.
The third reason that time is needed is to allow for printing and distribution of the report. As I have explained, the text cannot be settled until decisions have been reached on any excision requests. But once the text is finalised, Her Majesty's Stationery Office is 1161 now able to use the latest techniques to enable the report to be printed, distributed and published in a few days.
I hope it is clear that there are good reasons why the time from my receipt of MMC reports to publication must vary. I fear that there can be no set rules. The number of excisions requests may be quite unrelated to the complexity of the issues in the report and the remedy the MMC recommends. But all possible efforts are made to expedite the publication of the report and decisions on it.
The amendments of the noble Lords, Lord Williams of Elvel and Lord Peston, seem intended to use the mechanisms for examining mergers in order to hamper merger activity. Instead of keeping markets open, I suspect that the effect of their amendments would be to close them off. It is, I fear, symptomatic of the difference between the Government and Opposition. For those reasons I must oppose these amendments, and I very much hope that the noble Lords will reflect on what I have said and even now withdraw them.
§ 4.30 p.m.
§ Lord Williams of ElvelI am grateful to all noble Lords who have taken part in the debate. I am most grateful to my noble friend Lord Jay and to the noble Lord, Lord Lloyd of Kilgerran, the noble Viscount, Lord Caldecote, and the noble Lord, Lord Ezra, for support, although for differing motives. However, I believe that we generally share the same position.
I accept the strictures of the noble Lord, Lord Lloyd of Kilgerran, on the drafting of one of my amendments. I am not the world's greatest parliamentary draftsman. It is my job simply to set out what the Opposition feel should be the case and, if the Government accept it, there are plenty of people who will draft it much better than I can.
§ Lord Williams of ElvelI am grateful for that. The noble Lord, Lord Morris, dealt with amendments which will arise later in connection with the public interest. Therefore, I shall not now address myself to those matters.
The noble Baroness, Lady Carnegy, raised the interesting question of whether merger policies should be out of politics. There are two ways of running merger policy. The first is what I call the "United States way" where it is a matter of law. It is a matter for the government or the state, if they feel so moved, to challenge in the courts any particular operation. That is a perfectly clear system but it is not the system that we in this country have adopted since 1948. Nor is it the system which the Government are proposing to introduce. We have a flexible system of merger control which allows the public interest to be taken into account at a number of levels. The case is not decided finally in the courts but by the Secretary of State and the Executive of the Government.
It is true that in Germany and Japan competition rules tend to follow the United States practice. However, as the noble Viscount, Lord Caldecote, pointed out, almost all the mergers are agreed. Not 1162 only are they agreed between two companies but they are also agreed with the governmental authorities. For four years I was engaged in arranging mergers on the Continent and I know perfectly well—
§ Lord Young of GraffhamDoes the noble Lord agree that agreed mergers can be just as anticompetitive as contested mergers?
§ Lord Williams of ElvelMost certainly I agree with that. However, I was making the point that on the Continent governmental, or state, or land authorities are brought into negotiations when a larger merger takes place. I know that that is certainly the case in France and Germany because I have been involved in a number of them. That point needs to be made because the situation is unlike that in the United States where the issue is decided in the courts.
The noble Lord, Lord Wolfson, spoke of European competition. We shall deal with that point in our discussions on Section 84 of the Fair Trading Act and the public interest critieria. If the noble Lord will excuse me I shall not comment on what he said. However, I should like to point out that. I mentioned shareholders and I believe that they have their rights in such matters. However, I also believe that employees have their rights and I should like to see more attention paid to that—
§ Lord WolfsonDoes the noble Lord agree that in many cases employees and shareholders are becoming one and the same?
§ Lord Williams of ElvelI hope that that situation will grow. The Minister has conceded my amendment which deals with ESOPs and which will promote just that move. I support the development so the Minister and I are at one on that matter.
The Minister appeared to be in a rather humble mood today. He announced that he knew nothing about economics; he announced that he did not know about junk bonds; he said that he had not read The Wealth of Nations. However, I thought that he was rather dismissive of the arguments put forward by his noble friend Lord Caldecote. There lies the central difference of opinion on the Benches opposite. I believe that I align myself with the noble Viscount more than I align myself with the Secretary of State.
The noble Lord, Lord Young, then treated the Committee to a lengthy discursus on the existing system of the way in which the Director General of Fair Trading works. I understand that because I have worked in the system. Nevertheless, I do not believe that it is a sensible argument to say, "We cannot adopt the amendment because it would clog up the system". There I take up the point made by the noble Lord, Lord Rees.
At the moment if a merger is proposed which is above the two thresholds set out in the Fair Trading Act the director general has a duty to smoke it out in some way—he must look at the proposal. If he must do so because someone tells him that the merger is to take place—or if he must look at the proposal in any event, as he does at the moment—I do not see how the system will differ greatly administratively. I do not see that a requirement for an extra 30 people in the Office of Fair Trading will clog up the system.
1163 Finally, the noble Lord, Lord Young, attempted to make what I regard as a party political point. He said that we are not in favour of competition and that we should like to be nostalgic about the old days. We are not arguing about that issue and I wish that on every occasion the Secretary of State would abandon the last page of his brief and let the Committee discuss the practical amendments.
This is an important amendment although, in our view, a major change would not be involved. However, it would place a block before a merger takes place so that the Secretary of State and the director general can look at the proposal and say that prima facie it may be against the public interest and should be referred.
Clearly we cannot guess at the number of references which may take place under that system. The Minister guessed at them but I have no idea of the effect in terms of references. However, I believe that if we as Parliament—and through Parliament the Executive—cannot take a view on whether it is in the public interest that the merger should take place, we are in default in our duty. The noble Viscount, Lord Caldecote, put his finger on the point when he said that building up the manufacturing base will be essential—
§ Lord Young of GraffhamPerhaps the noble Lord can elucidate and tell the Committee how it helps to build up the manufacturing base by asking the Monopolies and Mergers Commission to look at 40 or 50 bids a year or by asking the Office of Fair Trading to look in considerably more detail at 200 of the 400 bids a year?
§ Lord Williams of ElvelIt helps because there would be a public interest criterion in Section 84 as it exists at present. Furthermore, the merger must be proved to be in the public interest before being allowed to go through. At the moment there is no burden of proof.
§ Lord Young of GraffhamPerhaps the noble Lord does not follow me. I understand the point about the criterion, but how does it help to build up the manufacturing base? What test can the Monopolies and Mergers Commission carry out to ensure that somehow firms will be made more competitive and their products will sell more widely?
§ Lord Williams of ElvelThat is exactly the point. The Monopolies and Mergers Commission, the Secretary of State and the director general must take that decision, and at present they take the decision by non-referral. All we are asking is that the question of referral—the burden of proof—should be made positive rather than negative. I believe that that responds to the point made by the Secretary of State about the DTI paper from which I quoted extensively. I pointed out that at present 50 per cent. of all mergers appear to go wrong. We believe that the public should pay attention to that fact and for that reason I hope that the Committee will support us in our amendment. I beg to move.
§ 4.38 p.m.
§ On Question, Whether the said amendment (No. 244ZA) shall be agreed to?
1165| DIVISION NO. 1 | |
| CONTENTS | |
| Addington, L. | Hunt, L. |
| Aylestone, L. | Jay, L. |
| Birk, B. | Kilbracken, L. |
| Blackstone, B. | Listowel, E. |
| Bonham-Carter, L. | Llewelyn-Davies of Hastoe, B. |
| Boston of Faversham, L. | |
| Broadbridge, L. | Lloyd of Kilgerran, L. |
| Buckmaster, V. | Lockwood, B. |
| Carmichael of Kelvingrove, L. | Longford, E. |
| Mais, L. | |
| Carter, L. [Teller.] | Mishcon, L. |
| Chandos, V. | Molloy, L. |
| Cledwyn of Penrhos, L. | Mulley, L. |
| Cocks of Hartcliffe, L. | Nicol, B. |
| Cudlipp, L. | Peston, L. |
| David, B. | Phillips, B. |
| Dean of Beswick, L. | Pitt of Hampstead, L. |
| Diamond, L. | Ponsonby of Shulbrede, L. [Teller.] |
| Dormand of Easington, L. | |
| Elwyn-Jones, L. | Prys-Davies, L. |
| Ennals, L. | Rathcreedan, L. |
| Ewart-Biggs, B. | Ritchie of Dundee, L. |
| Ezra, L. | Rugby, L. |
| Falkland, V. | Sainsbury, L. |
| Gallacher, L. | Seear, B. |
| Gladwyn, L. | Serota, B. |
| Glenamara, L. | Stallard, L. |
| Graham of Edmonton, L. | Stedman, B. |
| Gregson, L. | Stewart of Fulham, L. |
| Hanworth, V. | Stoddart of Swindon, L. |
| Hatch of Lusby, L. | Strabolgi, L. |
| Henderson of Brompton, L. | Turner of Camden, B. |
| Underhill, L. | |
| Houghton of Sowerby, L. | Williams of Elvel, L. |
| NOT-CONTENTS | |
| Aldington, L. | Elliot of Harwood, B. |
| Ampthill, L. | Elton, L. |
| Arran, E. | Ferrers, E. |
| Auckland, L. | Fortescue, E. |
| Balfour, E. | Fraser of Carmyllie, L. |
| Barber, L. | Fraser of Kilmorack, L. |
| Belhaven and Stenton, L. | Gainford, L. |
| Beloff, L. | Gray of Contin, L. |
| Belstead, L. | Grimthorpe, L. |
| Bessborough, E. | Haig, E. |
| Birdwood, L. | Hailsham of Saint Marylebone, L. |
| Blatch, B. | |
| Blyth, L. | Halsbury, E. |
| Boardman, L. | Hardinge of Penshurst, L. |
| Bolton, L. | Harvington, L. |
| Borthwick, L. | Henley, L. |
| Boyd-Carpenter, L. | Hertford, M. |
| Brabazon of Tara, L. | Hesketh, L. |
| Brightman, L. | Hirshfield, L. |
| Brougham and Vaux, L. | Hives, L. |
| Campbell of Alloway, L. | Home of the Hirsel, L. |
| Campbell of Croy, L. | Hooper, B. |
| Carnegy of Lour, B. | Howe, E. |
| Cathcart, E. | Hylton-Foster, B. |
| Cockfield, L. | Ilchester, E. |
| Coleraine, L. | Jenkin of Roding, L. |
| Craigavon, V. | Killearn, L. |
| Cullen of Ashbourne, L. | Kimball, L. |
| Denham, L. [Teller.] | Lawrence, L. |
| Denning, L. [Teller.] | Lloyd of Hampstead, L. |
| Dundee, E. | Long, V. |
| Dunrossil, V. | Lurgan, L. |
| Ellenborough, L. | Mackay of Clashfern, L. |
| Macleod of Borve, B. | Seebohm, L. |
| Mancroft, L. | Selborne, E. |
| Manton, L. | Selkirk, E. |
| Margadale, L. | Shannon, E. |
| Marley, L. | Simon of Glaisdale, L. |
| Marsh, L. | Skelmersdale, L. |
| Merrivale, L. | Southborough, L. |
| Milverton, L. | Stockton, E. |
| Mottistone, L. | Strange, B. |
| Mowbray and Stourton, L. | Strathcarron, L. |
| Munster, E. | Strathclyde, L. |
| Nelson, E. | Strathspey, L. |
| Norrie, L. | Suffield, L. |
| Onslow, E. | Swansea, L. |
| Oppenheim-Barnes, B. | Swinton, E. |
| Orkney, E. | Terrington, L. |
| Oxfuird, V. | Teviot, L. |
| Pender, L. | Thomas of Gwydir, L. |
| Pennock, L. | Thomas of Swynnerton, L. |
| Plummer of St. Marylebone L. | Thorneycroft, L. |
| Trafford, L. | |
| Porritt, L. | Trefgarne, L. |
| Portland, D. | Trumpington, B. |
| Portsmouth, E. | Vaux of Harrowden, L. |
| Quinton, L. | Waldegrave, E. |
| Rankeillour, L. | Weir, V. |
| Reay, L. | Westbury, L. |
| Rees, L. | Wise, L. |
| Rodney, L. | Wolfson, L. |
| Roskill, L. | Young of Graffham, L. |
| Sanderson of Bowden, L. |
§ 4.46 p.m.
§ Lord Peston moved Amendment No. 244ZB:
§ Before Clause 97 insert the following new clause:
§
("Merger reference: section 84 of Fair Trading Act 1973.. In section 64 of the Fair Trading Act 1973 (merger situation qualifying for investigation) after subsection (5) insert—
(5A) In determining whether to make a merger reference to the Commission the Secretary of State shall have regard to the public interest considerations as specified in section 84 of this Act."".
)
The noble Lord saidA number of the considerations which applied to the previous amendment are relevant also to this one so I shall not delay the Committee excessively—especially given the Division we have just had. I am not full of confidence that I can sway any open minds assuming that there are any.
We are discussing something to which the Secretary of State referrerd earlier; namely, how these matters are dealt with in practice. One interpretation of Section 64 of the Fair Trading Act is that at the stage where the Secretary of State is involved, he devotes himself entirely to concentration or competition matters with the criteria in Section 84 only applying later. However, it is difficult to believe that that is what the Act actually means. If it did mean that, then nearly all mergers would be referred. As I argued earlier, by definition there is always an increase of concentration when a merger takes place.
Therefore, in practice, there must be other criteria not unconnected with the definition of the public interest which arise when the question of a merger reference appears before the Secretary of State. Perhaps I may argue mutatis mutandis because I believe this amendment is grouped with Amendment No. 245K. That is the corresponding amendment which applies to the director general, and a similar 1166 point applies. In other words, in deciding these matters where the Secretary of State or director general take a view, there must be some criteria in mind. The Secretary of State almost said as much in his earlier remarks.
Previously, the Secretary of State referred to nostalgia for those times; I have a nostalgia for those times. Without revealing any official secrets or breaking the normal confidences which civil servants have, it is not impossible that officials, when advising the Secretary of State on how he should approach the question of a merger reference, draw his attention to the criteria in Section 84.
In other words, in arguing as a matter of consistency that the criteria in Section 84 should be on the face of the Bill, I am also partly arguing that I am fairly sure that that is what happens in practice anyway. Therefore why should that not be stated very clearly?
I have another interest on which I should like to draw out the Secretary of State. This relates to whether there are any other hidden criteria; namely, whether there are other matters that influence the Secretary of State. My view is that, if there are, those criteria should also be spelt out. Being as brief as I can, my arguments on why these amendments should commend themselves to the Secretary of State are partly for logical consistency and secondly, because it must be the case that that is broadly what happens, anyway.
I am also arguing the case for explicit criteria against, if you like, hidden criteria. However, even there I must not go too far because Section 84 contains the expression—which I admit I do not like—"and amongst other things". In other words, it still leaves room for other matters to be brought forward. Even moving that far would not constrain the Secretary of State too much. To summarise, therefore, there is a rational case for such an amendment to be introduced and I commend it to the Committee. I beg to move.
§ Lord Lloyd of KilgerranI should like briefly to support these two amendments in spite of the long dissertations we have heard about The Wealth of Nations and the recent speeches made by the Secretary of State.
There is a rationale for these two amendments. The position is quite clear. Under Section 64 we are dealing with a merger situation qualifying for investigation. All that Amendment No. 244ZB proposes is that the considerations in Section 84 of the Act should be looked at. That is all it says.
I understand that the amendment is linked with Amendment No. 245K. We have another pragmatic, simple situation. We are now referring to Section 76, which deals with the functions of a director in merger situations. What does he have to do? He must look at the position in the light of the public interest and in the light of the criteria already in the Act. I should have thought that these two amendments could happily be introduced.
§ Viscount ChandosI too speak in favour of this amendment. The Secretary of State asked the noble Lord, Lord Williams, what the previous amendment 1167 would do to improve sales, competitiveness and profitability in a company that is referred. The point is that there are cases where companies can justify a period of shelter in exactly the way, as I pointed out on Second Reading, that the Government have granted temporary periods of shelter to companies that they have privatised through the existence of golden shares and so on. It seems to me that there are a reasonable number of companies that are not being caught by the current competition-oriented criteria which are falling prey to the relatively short-term predators and that the public interest is thereby being harmed.
My second point is that the Secretary of State said earlier that he had a great deal of flexibility and discretion. My understanding is that he can only overrule the Director General of Fair Trading if the director general recommends that a merger be blocked. The Secretary of State cannot recommend that a merger be blocked if the director general has cleared it. Therefore, it is most important that the Secretary of State takes into account the broader public interest definitions and makes that clear to the Monopolies and Mergers Commission when there is a reference in order to ensure that the MMC itself takes into account the broader criteria that the Fair Trading Act empowers it to do.
§ Lord Young of GraffhamI reassure the noble Lord, Lord Peston, that I have an open mind. Surely he should have learnt that from my claim not to be an economist—but that is something else.
Perhaps the noble Viscount, Lord Chandos, has misunderstood the position. I always have the right to overrule the Director General of Fair Trading. What I cannot do is block a merger which the Monopolies and Mergers Commission says can proceed, having considered the merger and said that it would not operate against the public interest. In those circumstances, under the Fair Trading Act I could not arbitarily decide that there is a new test of public interest.
I heard what the noble Lord, Lord Lloyd of Kilgerran, had to say. Perhaps I should say to both the noble Lords, Lord Peston and Lord Lloyd, that we have already discussed the action which I and the director general would have to take and to which these amendments are applying the public interest test. However, I can only add at the moment that it is left to the MMC to apply the test of public interest under Section 84. For that to be done at the pre-reference stage—and it would have to be done first by the Director General of Fair Trading—would pre-empt the role of the MMC. It would apply a rigorous examination of a kind which only a few moments ago the Committee decided would be inappropriate at that stage. In the circumstances, therefore, I hope that the noble Lord will accept the position and withdraw his amendment.
§ Lord PestonI am bound to say that I am a trifle disappointed. It is certainly not the intention of the amendment to pre-empt the activities of the MMC or anything like that. The intention is to make much clearer what the Secretary of State and the director 1168 general are up to. After all, the words are "have regard to". I did not have in mind anything other than making much clearer what would be happening.
§ Lord Young of GraffhamI hope that the noble Lord will accept that I cannot "have regard to" the test without actually examining it. In effect, that would mean the director general would have to apply the same rigorous examination as the MMC. We must also remember that the MMC, consisting of a panel of 32 people which varies from time to time, has been decided in the past by your Lordships' House to be the most suitable body to apply the test.
§ Lord PestonPerhaps I could at least make clear what we are talking about. The intention is not to replace another body with the activity of the Secretary of State. It is certainly not for the Secretary of State to do the work. Equally, we must recognise what actually is the position. The Secretary of State has himself made clear that he does not simply take a merger and say, "This is a merger. Clearly it involves concentration, first and foremost, and therefore I must send it on". The director general does not do that. They clearly concern themselves with criteria. I understood the Secretary of State to he saying that he took a broader view of the matter.
I am moving the amendment in the same spirit as that of the Secretary of State on Second Reading. He said that in discussing these matters "we would be open minded" —to use that expression again. I am seeking to be constructive. I am not looking for trouble, as perhaps I was earlier. I am trying to be constructive in saying that, as I see it, the Secretary of State must as a rational person have some class of criteria that he is applying in taking his actions. I suggest that it is logical that the criteria should be those in Section 84. I cannot believe that they would not be. In other words, I am saying to the Secretary of State, without asking him to tell me what he does secretly, that I cannot believe that he does not already do what I am saying should be made explicit.
It may be that we are having an argument which we ought not to be having, so to speak, and perhaps the Secretary of State may wish to make some further comment before I conclude so that we may proceed amicably. I do not see this in quite the contentious way that the Secretary of State himself almost interpreted it.
§ 5 p.m.
§ Lord Young of GraffhamPerhaps I may help the noble Lord, Lord Peston. I am aware—indeed, we are all aware—of the public interest test that the Monopolies and Mergers Commission will apply in due course. I have said in the past that the job of the Director General of Fair Trading, and indeed my job as well, is to act almost as a magistrates' court to see whether there is a case to answer, and purely that. If there appears prima facie to be a case to answer—and it so happens that between eight and 13 times a year there is—then those cases get referred to the Monopolies and Mergers Commission.
The commission does the deep and exhaustive test to find out if the proposed merger does have an anti- 1169 competitive effect which will operate against the public interest. If we are to bring that test forward, then that deep and exhaustive investigation will have to be undertaken by the Director General of Fair Trading rather than the prima facie approach that he takes at the moment. That is really the point I am making.
§ Lord Lloyd of KilgerranI may have misunderstood the Minister. Is the noble Lord saying that in his preliminary investigation he has no regard to Section 84 of the Fair Trading Act? Section 84 of the Fair Trading Act gives criteria for the public interest. Is the noble Lord saying that he takes no account of Section 84 in his rulings and the decisions that, in his capacity as Secretary of State, he has to make in this preliminary matter?
§ Lord Young of GraffhamNo, I said at the beginning that we have regard to Section 84 all the way through. The job of the director general is to see whether there is a prima facie case to be fully investigated. That preliminary view is different from the more exhaustive view that takes some three months and which the MMC makes. It is only if they see that there is a prima facie case, and I accept that there is a prima facie case, that it gets referred. What this amendment would do is make us have a more exhaustive investigation by a body that, frankly, is unsuited to that task.
§ Lord Lloyd of KilgerranI am sorry to intervene once again, but that is precisely what this amendment is intended to do. You have to see whether there is a prima facie case. You will have to have regard to Section 84. I should have thought that the Minister in his reply now is ad idem with the noble Lord, Lord Peston, at least in relation to the terms of this amendment.
§ Lord Young of GraffhamIf it were to do what happens now then it is clearly unnecessary. My view is that it asks us to do more than we are doing now.
§ Lord PestonBefore bringing this to a conclusion, may I first say to the Secretary of State, if I dare, that I thought that he put my case better than I did. I think his analogy with the magistrates' court is precisely what I had in mind, and the question of whether there is a case to answer is precisely what I had in mind. Therefore, as with the noble Lord, Lord Lloyd, the issue simply revolves around whether it should be made explicit.
The Secretary of State shakes his head and I shall not pursue the point. I have tried to be as helpful as I can in terms of the Bill. I believe that, with this added, the Fair Trading Act would be a better Act. I think it would be enormously helpful to industry. However, we cannot spend all afternoon and evening trying to persuade the Secretary of State if he will not be persuaded. All I can do is ask him whether, given how well he put the case for this amendment, he would not like at least to think about it again, because we shall be coming back to these matters. Having said that, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 97 [Restriction on references where prior notice given]
§
Lord Williams of Elvel moved Amendment No. 244ZC:
Page 98, line 6, leave out ("may") and insert ("shall").
The noble Lord saidI beg to move Amendment No. 244ZC, standing in my name and that of my noble friend Lord Peston. At this stage we come to the Bill itself rather than discussing certain preliminaries that we were trying to put into the Bill, and we come to Clause 97. Clause 97 deals with the prenotification procedure that is suggested.
This amendment is based on the legislation in the United States which is summarised as the Hart-Scott-Rodino legislation. The amendment, if accepted and put into the Bill, would require, as the Hart-Scott-Rodino legislation in the States requires, a mandatory prenotification once the relevant threshold has been crossed. The relevant threshold in Hart-Scott-Rodino is size of company and the proportion, or the amount, of stock in another company acquired. The relevant threshold in the Fair Trading Act is size of company in terms of net assets and share of market.
There are some obvious differences between the United States practice and our own and we cannot follow explicitly the terms and provisions of the Hart-Scott-Rodino Act. Nevertheless there are some features of it that should commend themselves to us.
The United States legislation provides that whenever one company buys more than 15 million dollars' worth of stock in another for purposes other than purely passive investment, it must notify the Justice Department and the Federal Trade Commission. After the notice is filed, the company—the bidder in this case—has to observe a 30-day waiting period. This is similar to what we have in the Bill at the moment.
The company then waits during the waiting period and if the Justice Department or the FTC say nothing at all, the company in question is then free to proceed with a bid. If the FTC or the Justice Department tries to challenge it, then it will challenge in the courts according to the normal anti-trust procedures under the Sherman Act.
The procedure in the United Kingdom is of course somewhat different, as we have discussed earlier, in that it is for the director general to make a first assessment and the Secretary of State to make an assessment according to what criteria he feels appropriate, and for the Monopolies and Mergers Commission then to intervene if that is the right thing to do and if the merger reference takes place.
Our amendment would seek to take what the Government are proposing and to make sure that all companies take advantage—if I may use that expression—of the provisions in the Bill. Not just those who wish to should take advantage: all should do so. The merit of this in our view—and we go some way in supporting the Government in what they are proposing; we think it is a relatively convenient system, as I said at Second Reading—is that we 1171 should like to see this as a general rule rather than an option.
We believe that, if the director is informed by companies which cross the relevant threshold in the Fair Trading Act, he will then have the opportunity to do all the things that he can do under the provisions of Clause 97 as it is in the Bill at the moment. He would be able to do that and the companies would be quite secure that, if he did not intervene, they could go ahead, and there might be undertakings or there might not be undertakings, and all that would proceed in the way that the Bill specifies. The director would also make public these prenotifications as is provided in the Bill, and others would have the opportunity to comment on those prenotifications. It would introduce a system that was not just optional but which was the regular feature of the merger world.
It works well in the United States. I have to confess that the Hart-Scott-Rodino legislation was fought very hard through Congress when it was introduced, but in the end it got through and it has worked well. It allows the government—the Justice Department and the Federal Trade Commission—to weigh up the issues before anything actually happens.
I do not want to go into any of the detail of the United States legislation because the United States system is rather different from ours, and it may be again that the amendment is incorrectly drafted. It may be that the amendment needs a more expert hand than mine. However, we believe that this is a procedure that the Government would do well to adopt, and I beg to move.
§ Lord Young of GraffhamThe prenotification system is designed to facilitate the process of examining mergers, especially for the vast majority of mergers where it is clear at an early stage that a reference would not be justified. It will enable parties to know what they have to do and what information to provide; and, if they meet the necessary conditions, once the period for considering the merger has expired I will no longer have the power to refer it. It will give the Office of Fair Trading the information that it needs to decide quickly which mergers raise no competition or other problems and advise me accordingly or which need further examination with a view to a possible reference.
The noble Lord wants to make prenotification mandatory. His amendment is flawed, however, because it takes no account of the fact that the present discretionary system is very widely drawn. Proposed arrangements would have to be prenotified if they only might result in a qualifying merger. It would be impossible for the applicant to know whether the obligation to notify had arisen, because what might result in a merger situation is often a matter of judgment, which is ultimately for the Monopolies and Mergers Commission. Moreover, what happens if they fail to notify the director general is not made clear; there is nothing to stop the merger proceedings, as the Act only enables me to do that following an adverse report by the Monopolies and Mergers Commission.
1172 There is in our view no case for requiring prenotification. It is rare for completed mergers to present a problem, so holding all mergers up pending examination is unnecessary. It would catch a large number of cases of no real interest to the authorities. We believe that a voluntary system which leaves it to the parties to decide whether it is worth obtaining advance clearance is consistent with the principle of minimising intervention in the merger control process. The whole point of our proposed system is that it is voluntary: firms will be able to decide whether it is worth while prenotifying, and it is up to us to make it worth their while.
The noble Lord's amendment would therefore impose an unnecessary burden on firms and the authorities. I fear that it would use procedures designed to facilitate examination of mergers in order to put a brake on mergers. I hope that he will be so good as to agree to withdraw it.
§ Lord Williams of ElvelPerhaps the Secretary of State can clear up one point. If I heard him correctly, he said that companies might not know when they were in a notifiable situation. I should have thought that the net asset criterion in the Fair Trading Act was clear enough so that any company would know when it was in a prenotification situation. Am I right or wrong on that?
§ Lord Young of GraffhamThis point will come into being later on. Companies can start to acquire more shares and then find themselves in a merger situation or it could be determined later that they were in a merger situation without necessarily realising it.
§ Lord Williams of ElvelI am grateful to the noble Lord, but in fact I was after a slightly different point on the thresholds under the Fair Trading Act. I take the point that companies rather curiously may find themselves getting into a merger situation through a purchase of shares, which is nothing to do with the thresholds under the Fair Trading Act, about which I was talking.
I have listened to the noble Lord's argument. I have to accept that there is a difference of opinion between us and the Government on the matter. I shall not press the Committee for a decision. I shall read carefully what has been said. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 244ZD not moved.]
§ 5.15 p.m.
§
Lord Young of Graffham moved Amendment No. 244A:
Page 98, line 17, leave out ("resulting merger situation") and insert ("merger situation qualifying for investigation which is created in consequence of carrying those arrangement into effect").
The noble Lord saidIn moving Amendment No. 244A I hope that it will be convenient if I speak also to Amendments Nos. 245D and 245E. These are purely drafting amendments to replace a defined term, which is used only once, in new Section 75A(3) with the full definition. The definition in Section 75E can accordingly be dispensed with. I beg to move.
§ Lord Williams of Elvel moved Amendment No. 244B:
§ page 98, line 33, after ("twenty-eight") insert ("working").
The noble Lord saidIn moving Amendment No. 244B, I shall speak also to Amendment No. 244C. Amendment No. 244B has been suggested by the Law Society of Scotland.
It is an oddity that calendar days are used in the Bill instead of working days. When we talk of calendar days there may be long gaps such as the Christmas and New Year holidays whereby the number of working days in a given 28-day period is not the same as in May or June. There is a risk that merger notices may be bunched round the end of the first week in December by a clever group of bidders, perhaps to no one's particular advantage. We think that it is sensible for the period about which we are talking to be working days rather calendar days. The same is true of Amendment No. 244C where the director has power of extension of the period. Again we believe that "working days" is the proper expression.
Perhaps I may ask the Secretary of State to clear up one point on the power of the director to extend the period. As I understand it, he has the power under the Bill to extend the period only once. It is not an indefinite series of extensions that he can go in for. I hope that the noble Lord can clear up that point in his reply.
While the amendments are not of great significance, they come from a good and reputable source. I hope that the noble Lord will be able to give them careful consideration. I beg to move.
§ Lord Young of GraffhamTo be successful the prenotification system must offer prenotifiers the certainty of a decision from the authorities within a time-scale which is as short and as firm as possible. The director general needs sufficient time to consider whether in the light of the available facts a merger should be referred for full consideration by the Monopolies and Mergers Commission. But the longer the time allowed to the director general the less attractive voluntary prenotification becomes to the companies concerned, which will not use the system if it does not offer any advantage in terms of time. A careful balance needs to be struck between these two requirements if voluntary prenotification is to be workable.
Our assessment, based on past experience and consultation with the director general, is that a period of 28 days strikes the right balance. We have used a definition based on "days" rather than "working days" because this is more straightforward and readily calculable. The period of 28 days would have to start and end on a working day.
We recognise concerns that a fixed period of 28 days may not in every case prove sufficient for various reasons, of which the loss of days through Bank Holidays is by no means the most important. That is why the Bill contains a provision allowing this 28-day period to be extended by a further 14 days. We envisage that this provision will not have to be used in the majority of cases. However, there is nothing to prevent this power being used to extend the period 1174 more than once. In fact, it can be extended more than once. There is no reason on that account to make the extension provision in the Bill for a longer period.
§ Lord Williams of ElvelThe Secretary of State said that the period can be extended more than once. Can it be extended an indefinite number of times? Is there no limitation on what the director general can do?
§ Lord Young of GraffhamYes, it can be extended for an indefinite period.
I hope that it is not part of the noble Lord's intention in moving the amendment simply to delay further the progress of prospective mergers. As I have already said, there should be no place in government policy for measures designed purely to obstruct legitimate merger activity. That is why the period set in the Bill for consideration of prenotified mergers is the shortest possible consistent with a proper assessment of the facts. However, we recognise that setting a period in terms of working days may have some advantages for the authorities. In the circumstances, therefore, I am prepared, if the noble Lord will withdraw the amendment, to look at the matter again. If we were to do so, it would cover the same calendar period. It would be a reduced number of working days.
§ Lord Williams of ElvelI am most grateful to the noble Lord. It certainly was not my intention in moving the amendment to shorten the time-scale. I was trying to find someting more satisfactory than calendar days. I accept that if the vvorking day principle is adopted the number of working days would be smaller than the 28-day calendar.
I have not moved an amendment to this effect but it is somewhat worrying that the director can engage in an indefinite number of extensions of this period. The noble Lord said absolutely rightly that firms want to have a clear idea of the time-scale. There can be one extension, but to have one, two, three, four or five extensions creates exactly the problem that the noble Lord and I want to avoid. I hope that he will consider having another look at the point before we come to Report stage.
§ Lord Young of GraffhamIf the noble Lord will withdraw the amendment, I shall look not only at the working day point but also at extensions more than once.
§ Lord Williams of ElvelI am most grateful. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 244C not moved.]
§ Lord Williams of Elvel moved Amendment No. 244D:
§
Page 99, line 24, at end insert ("or
(c) he suspects that there is no intention to implement the notified arrangements or that any such intention has been abandoned.").
The noble Lord saidThis again is an effort to try to improve the provisions of prenotification. The amendment would give to the Secretary of State the 1175 opportunity to shorten the period if he perceives that the original intention will not materialise. Everybody has pulled away from the deal and the period can then be shortened. The amendment has been suggested by the Law Society of Scotland. I should be grateful if the noble Lord would give some attention to it. I beg to move.
§ Lord Young of GraffhamI hope that the noble Lord will take this as an example of how open my mind is today.
This amendment is presumably intended to allow the director general to reject prenotifications he considers to be speculative and would also allow him to cease consideration of cases where he considered the proposed transaction had been abandoned since the prenotification was made. This change seems to make a sensible additional provision; but we are not entirely convinced that it is necessary. Where the director general has doubts about a proposed merger, he will have the power under subsection (4) of the new Section 75B to request whatever information he needs to be satisfied about the proposed transaction. If this information is not forthcoming, if it is not supplied in time or if the director general suspects it is false or misleading, he will then be able, under subsection (6) of new Section 75B, to reject the prenotification. If parties no longer intend to proceed with a merger, there is provision for them to withdraw their notification. These provisions should deal satisfactorily with most situations.
The amendment would introduce an element of uncertainty into the system for prenotifiers. Prenotifiers need to be confident that if they provide all the information that is requested they will in most cases get a decision within a short time, without there being a whole series of qualifications to the decision-making process. We are concerned that the system for voluntary prenotification of mergers will not be successful if it is hedged around with too many exceptions of this kind.
Having said that, we can see some merit in this amendment as a procedural change which would allow the director general to concentrate his resources on cases where there was a clear intention to go ahead with the proposed merger. The director general would have to exercise this power in a fair and reasonable way. He could not arbitrarily reject prenotifications when there were good reason to think they had been abandoned. On this basis, we are prepared to look again at this as a minor procedural improvement. If the noble Lord will withdraw the amendment we will consider bringing forward something on these lines at a later stage.
§ Lord Williams of ElvelI am most grateful to the noble Lord. We are making a great deal of progress on the Bill. I am sure that it is being improved in Committee. On that basis, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§
Lord Williams of Elvel moved Amendment No. 244E:
Page 99, line 29, leave out ("England and Wales") and insert ("any part of Great Britain.").
The noble Lord saidThis again is a Scottish amendment. The Law Society of Scotland has a problem in that Bank Holidays in Scotland do not necessarily fall on the same days as Bank Holidays in England and Wales. The director general, being situated in London, clearly does not work on Bank Holidays in England and Wales but may work on Scottish Bank Holidays; and vice versa. There does not seem to be any difficulty in making sure that the Bank Holiday exclusion is extended to Scotland as well as to England and Wales. I beg to move.
§ Lord Young of GraffhamThis amendment would change the definition of a working day for the purposes of the prenotification system so that it excluded Bank Holidays in any part of Great Britain rather than Bank Holidays in England and Wales. At first sight this appears to be a sensible amendment, but I hope to explain why it is unnecessary and in this case even undesirable.
The definition of a working day is required because new Section 75B provides that the 28-day period allowed for the director general to consider a prenotified merger shall begin and end on a working day. The important point here is that the day on which the period begins and ends should be a working day for the director general, who is located in England, because he is the person doing the considering. That is why the provision is framed as it is.
The effect of the proposed amendment would be to prevent the 28-day period beginning or ending, for example, on a Scottish Bank Holiday even though the day in question was a normal working day for the Office of Fair Trading. I therefore suggest that the existing provision is correct. There is no slight intended to those who live north of the Border. We want the provision to be as straightforward as possible consistent with ensuring that the Office of Fair Trading is open for business on the day the period begins and ends. If in the event we look at working days only, that would follow from any change we then make.
§ Lord Williams of ElvelI am sure no slight is intended but slight has been taken by the Law Society of Scotland. It claims that the reference in subsection (7) to the definition of "working day" as meaning Bank Holidays in England and Wales but without reference to Scotland is objectionable. I am sure that the Law Society of Scotland and I will read carefully what the noble Lord has said on this subject. I have to return to this matter at a later stage of the Bill should it come to that. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§
Lord Morris moved Amendment No. 245:
Page 100, line 9, at end insert ("or is suspected of being").
The noble Lord saidThis modest amendment is an attempt to improve the Bill and to probe my noble friend. Why is there a different test or arrangements whereby the director may at any time before the period for considering a merger notice expires reject the notice if he suspects that any information, whether in the merger notice or otherwise, is in any 1177 material respect false or misleading. After the period there is a different test. He then has power only to refer a bid if any information is seen to be in any material way false or misleading. This appears to be an anomaly. I should be grateful if my noble friend would explain the reason for the different tests. I beg to move.
§ 5.30 p.m.
§ Lord Young of GraffhamI hope that my noble friend will understand if I say to him that I suspect that the amendment which he has moved is neither modest nor, I fear, does it in our view improve the Bill. It is obviously essential for the proper operation of the prenotification system for the authorities to be able to rely on information which they are given by applicants. That is why we have provided that a clearance will be invalidated if any information given, whether in the original notice or otherwise, is false or misleading and why we have given the Director General of Fair Trading power to reject a notice where he suspects false or misleading information to have been given. However, it is also essential, if business is to have confidence in the system, that once a merger has been cleared it should not be possible to reopen it without good reason.
It is one thing to reject a notice at the time it is being considered, because the authorities will be subject to strict time limits and need to be able to trust the information they are given without having time to double-check everything. Rejection then means only that the applicant will lose the benefit of prenotification. The merger will still be considered in the normal way or the applicant can renotify and substantiate the information in question. It is not unreasonable therefore that the director general should be able to reject a notice on suspicion.
It is quite another matter when the period for considering the prenotification ends without a reference having been made. The applicant will then assume that the merger can no longer be referred to the Monopolies and Mergers Commission and may have acted on that assumption. Before that assumption is overturned on the grounds that false or misleading information had been given, it is only reasonable to require that this should actually be the case. The authorities will not be under any time constraint in establishing this, as it will remain possible to reopen a case at any time provided information can he shown to be false or misleading or if other new material information emerges. But it would be unjustified and disruptive to reopen a case, possibly several years after the event, merely on suspicion—which may turn out to be unfounded—that information was false or misleading. That is what the amendment moved by my noble friend would permit.
I hope that what I have said reassures my noble friend that the authorities will not be prevented from having another look at a case where there can be shown to be new material information or where existing information turns out to be wrong, and that he will in all those circumstances agree to withdraw the amendment.
§ Lord PestonI am bound to say that I thought that the amendment was rather sensible. However, it may well be that the Secretary of State has already covered the point which I thought was sensible. What one has in mind is exactly the point which I think the Secretary of State has made; that is, that the time has gone by and then suddenly, as it were, one begins to suspect that there is something fishy in the matter and therefore one wants to be in a position to look at it again.
Perhaps I may ask the Secretary of State this question. If it is suspected that there was some false or misleading information, am I right in thinking that the matter could be pursued but that the reference could not be taken up until one was pretty confident that there was false and misleading information? In other words, there is nothing to stop people looking further into a matter if they smell a rat. As I understand it, the Secretary of State is simply saying that the process of smelling a rat is not good enough and that one must actually find one's rat before one can reopen the case. I hope that I am right in my interpretation of what the Secretary of State said.
§ Lord Young of GraffhamYes, you must not just smell a rat, nor must you catch it; you must at least see it.
Lord MorrisI am most grateful to my noble friend for that explanation. I must say that I had the greatest difficulty in understanding the clauses as originally drafted. Therefore I am sure that he will understand why I also had a certain amount of difficulty in understanding his reply. However, I think that I understood what he said and I am as certain as I can be that it was a highly satisfactory explanation. Therefore, in the light of what he said, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord Young of Graffham moved Amendment No. 245A:
§
Page 100, line 10, at end insert—
(2) Where—
(3) In determining for the purposes of subsection (2) of this section the time at which any transaction actually occurred, no account shall be taken of any option or other conditional right until the option is exercised or the condition is satisfied.
§ The noble Lord said: With permission I shall speak also to Amendment No. 250. These amendments relate to the application of the provisions of Clause 101 to cases which are prenotified, and so I shall have to anticipate our discussion of that clause in order to explain them.
1179§ The merger reference powers in the Fair Trading Act recognise three distinct degrees of control which can create a merger: acquisition of material influence, of control over policy and of a controlling interest. The last is usually clear-cut but the others can occur at various levels of holding depending on the structure of ownership of the enterprise being taken over and other factors; consequently it is a matter of judgment whether the crucial stages have been reached. Although it is my job—and that of my successor in title—after taking advice from the Director General of Fair Trading, to take a view when deciding to make a merger reference, ultimately the judgment about whether a merger situation has been or will be created has to be made by the Monopolies and Mergers Commission.
§ That can pose a problem when a holding in a company is built up over a period of time in very small steps. It is a matter of deciding whether a given step has created a merger situation qualifying for reference, bearing in mind that it ceases to qualify after six months, in the absence of new material information. The Monopolies and Mergers Commission cannot look at previous acquisitions which no longer qualify for reference. So if a reference is left too late, the MMC might decide that the crucial step had already been taken and was beyond their reach; on the other hand, if we were to act too early, it might decide there was no merger to examine.
§ At present the problem can only arise where there is more than six months between transactions; but in future it will be possible to prenotify each step and the authorities must then either refer it within the period for consideration—which obviously they cannot extend indefinitely without good reason—or let it go. As a result, transactions could take place with little more than a month between them, resulting in a merger situation which might escape full scrutiny.
§ The new Section 66A introduced by Clause 101 will therefore enable us to treat successive transactions as having occurred simultaneously for the purposes of a merger reference. The transactions must all occur within a two-year period and must either result in one of the crucial degrees of control I have already mentioned; that is, increase the degree of control or be a step towards one of these things. Acquisition of a controlling interest will necessarily bring the series to an end, as this is a clearly identifiable step. The mergers legislation is not concerned with increasing control beyond this, and we would not want further acquisitions of minority holdings to reopen earlier transactions to reference.
§ However, Clause 97 provides that it will not be possible, except in certain defined circumstances, to refer a merger which has been properly prenotified once the period for considering it has expired. Any transaction which gave rise to a merger and which had been cleared under the new procedure could therefore not be included in a series being examined by the Monopolies and Mergers Commission under the provisions of Section 66A; and were it to conclude that the merger it was looking at had in fact come about as a result of one of these earlier transactions and not the one which finally sparked the reference, 1180 there would be nothing it could do about it. Amendment No. 245A therefore provides that a previous clearance following prenotification will not stop such a transaction from being included in a series covered by Section 66A, provided it is still possible to refer the latest in the series, and provided each transaction is separated from the next by no more than six months. I should explain that the last proviso means that we cannot reopen any previously prenotified and cleared merger involving the same enterprises within the last two years just because there is a further increase in control, unless there is a series of transactions each separated from the other by not more than six months.
§ By definition, a prenotified merger will be one that is in prospect. As it stands, however, only existing mergers are covered by Section 66A, and by the existing Section 66, which gives much more limited power to treat events as having occurred simultaneously. Prospective mergers are referred to the MMC under Section 75 of the Act, and Amendment No. 250 applies Section 66A for this purpose, as if the transaction giving rise to the reference occurred just before the reference was made. The present provision applying existing Section 66 to mergers in prospect, which is rather unclear, is replaced with a similar provision.
§ I apologise for taking up so much of the Committee's time with provisions which by their nature are likely to be invoked extremely rarely; indeed, their main value may be as a deterrent, to discourage people from exploiting what could otherwise be a loophole opened up by the new prenotification procedure. However, they are extremely technical, even by the standards of companies and mergers legislation, and I thought that the Committee would therefore want to have a full explanation. I beg to move.
§ Lord Williams of ElvelThe Committee is extremely grateful to the Secretary of State for his full explanation which allows us to try to start to understand what the government amendments mean. They are complex. We shall read carefully what the noble Lord said, and if we have any problems we may move amendments to his amendments on Report.
§ Lord Williams of Elvel moved Amendment No. 245AA:
§ Page 100, line 12, at end insert ("specified in subsection (2) below").
The noble Lord saidThis marks, I am afraid, the start of a series of amendments from these Benches, which will appear fairly regularly throughout our discussion of the Bill. The amendments are designed to try to ensure that as much goes into primary legislation as possible. It should not be left to the Secretary of State—whoever the Secretary of State may be at the time—to make regulations to change the primary legislation which this place has approved or to make regulations which deal with matters which in our view should properly be in a schedule.
In the case of new Section 75D, I cannot understand, and nor can others, why, for instance, the manner in which the merger notice is authorised 1181 or required to be given—the various details of the measure—should not be in a schedule to the primary legislation rather than in regulations which this place will not have a full opportunity to consider. The amendment is somewhat less important than others, especially those relating to new Section 74F of the Fair Trading Act, to which we shall come later.
I should like the Secretary of State to answer the questions that the amendments pose. They are of course probing amendments. Why does not the existing legislation provide for the matters referred to in new Section 75D? Why do we not have a new schedule to the Fair Trading Act which would set out the matter in primary legislation enabling everyone to see what we are doing? Why do these matters have to be left to regulations? I beg to move.
§ Lord Young of GraffhamThe fundamentals of the pre-notification system are set out in new Sections 75A to 75C in Clause 97. We consider it appropriate for the details of the system-how prior notice will be given; how it will be rejected; how it will be withdrawn, and when prior notice will be treated as received or rejected—to be dealt with by secondary legislation. It is after all a new procedure which has to stand the test of time.
The amendment would restrict our ability to frame regulations to deal with particular aspects of the prenotification system where requirements could change over time. The matters to be dealt with by regulation relate to the detailed mechanics of the system, not to the essentials of it. Secondary legislation has a clear role to play in dealing effectively with the details. I hope all in this place will agree that it is not appropriate to take up undue parliamentary time with non-controversial details which are, in all the circumstances, better left to secondary legislation.
While we are dealing with these provisions, perhaps I may, with the permission of the Committee, speak to Amendment No. 254B which enables regulations governing the service of notices on applicants to require an address for service. That is so that there can be no question about where is the proper place to send such notices. We intend to require such an address to be within the European Community to ensure that the normal course of post is within reasonable realms and that postal delays do not make the system unworkable.
§ 5.45 p.m.
§ Lord Williams of ElvelI appreciate what the Secretary of State says. I accept that there is a balance to be struck between implementing the details of legislation by regulation and having a schedule which is part of the primary legislation. However, the Financial Services Act, a piece of new legislation, according to the noble Lord, in a moving market—we did not know at the time it was a Bill what the result would be—set what in our view has become an undesirable precedent of having great chunks of primary legislation amended by statutory instrument which this place does not have a chance properly to consider as it does primary legislation. That is a worrying tendency. It is a worrying tendency in the Bill.
1182 The noble Lord, Lord Strathclyde, knows from our previous discussions that I shall be saying that many times in an attempt to cut down the number of instances a Secretary of State or the Executive can amend primary legislation by statutory instrument. Having made my point, as the noble Lord, Lord Strathclyde, will know yet again, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 245AB not moved.]
§ Lord Young of Graffham moved Amendment No. 245B:
§ Page 100, line 29, at end insert—
§ ("(cc) provide for the address which is to be treated for the purposes of section 75B(5) of this Act and of the regulations as a person's proper address,").
§ Lord Young of Graffham moved Amendment No. 245C:
§ Page 100, line 36, at end insert—
§ ("(2A) The regulations may make different provision for different cases.").
The noble Lord saidI shall speak also to Amendment No. 245F. Amendment No. 245C adds to the power to make regulations for the purposes of the pre-notification system a standard formula which ensures that regulations may make different provisions for different cases. One example is that in specifying time in which material information must be disclosed under new Section 75C, we might specify different times according to the location of the applicant which could affect how long it takes notices to reach him.
It does not however seem necessary to add the words, "or classes of case". Amendment No. 245F is a drafting amendment removing these words from another similar provision. I beg to move.
§ Lord Young of Graffham moved Amendment No. 245D:
§ Page 100, line 49, at end insert ("and").
§ Lord Young of Graffham moved Amendment No. 245E:
§ Page 101, line 2, leave out from ("Act-) to end of line 7
§ [Amendment No. 245EA not moved.]
§ Lord Young of Graffham moved Amendment No. 245F:
§ Page 101, line 21, leave out ("or classes of case").
§ >Clause 97, as amended, agreed to.
§ Lord Peston moved Amendment No. 245G:
§ After Clause 97, insert the following new clause:
§ (" Public interest. . In section 84(1)(a) of the Fair Trading Act 1973 (public interest), at end insert—"and in the European Economic Community".").
1183The noble Lord saidWith the Committee's permission I shall speak also to Amendment No. 245M. The amendments are important. They relate to matters raised on many occasions in this place. They were raised on Second Reading. I believe that I heard one or two European matters raised in our main debate on mergers earlier this afternoon.
Our concern again is to make explicit the European dimension of competition policy. We have a further amendment along analogous lines. The amendments have two purposes. The first is clarification; to obtain a statement from the Secretary of State as to the relationship between European legislation, to which we are committed in all sorts of ways, and our legislation. That relates to another matter of principle. I believe that I am right that in such cases we are already bound to take account of EC matters. I think I am right, but I should like to know that. If we are bound or obliged to take account of European Community aspects of competition and merger problems, then as regards the law I speak very much as a layman but is it not right that the Fair Trading Act should contain those matters? I ask that in order to be educated in the subject. I think other noble Lords would welcome a chance to have this matter taken further.
However, there is also a substantive economic point here which, again, we have debated. What is the relevant market within which we are discussing competition? Obviously I must assume that all those years ago, in 1973, those who were drafting the legislation on the Fair Trading Act took for granted that the relevant market was the supply of goods and services in the United Kingdom. The one thing we already know is that we must broaden our horizons. When we get to 1992, a fortiori we shall have to broaden our horizons.
The interesting question is whether in a sense we ought to argue that the United Kingdom is not at all the market to look at. Perhaps it ought to be. We have written down,
and in the European Economic Community",but the correct statement may well be,in the European Economic Community".These amendments have been put down with a view to gaining some elucidation, to remind ourselves how important the Community is in terms of competition and the criteria for competition. They are clearly not ones on which it would be appropriate simply to divide the Committee at this time. But we must hear the Secretary of State's thinking about them since it will be quite relevant to the way in which competition policy will emerge in the future. That is the reason for the amendments and we look forward to hearing what the Secretary of State has to say. I beg to move.
§ Lord EzraI wish to support the amendments, which I think are very timely and appropriate. The noble Lord, Lord Young, has himself played a leading role in stimulating industry to prepare for 1992 and the single market. It would be quite wrong if in this legislation, specifically on mergers, the European Community were not referred to.
1184 As regards the first amendment, I think it is absolutely right that the Fair Trading Act 1973 should be amended in Section 84 (1)(a) to read:
of maintaining and promoting effective competition between persons supplying goods and services in the United Kingdom and in the European Community".That seems to me to be a totally proper amendment to be brought into effect in 1989, looking to 1992.Similarly, I think it is very important that we take account of merger control arrangements within the Community. As matters are developing now, it will be for each country to deal with mergers according to its own legislation. But I believe that it is generally agreed—and no doubt the noble Lord can say whether this is true or not—that above a certain level affecting more than one Community country the mergers will be dealt with according to regulations to be worked out on a Community basis. If that is so, I think our legislation should be modified accordingly.
§ Lord Young of GraffhamThe first of these new clauses would mean that the Monopolies and Mergers Commission would have to concern itself with competition not just in the United Kingdom but also in the European Community. There is nothing wrong with being concerned about competition at the Community level. We are after all committed to a programme to reduce barriers to trade, to which the noble Lord, Lord Ezra, kindly referred a moment ago, and trade within the Community will further open up opportunities for competition.
There is already an institution charged with applying the competition provisions of the treaties. That is the European Commission. Anyone concerned about possible threats to competition within the European Community can go straight to the European Commission; or they can seek redress directly through the United Kingdom courts. It is unnecessary to give this task to the Monopolies and Mergers Commission. In fact, it would give a false impression. If the Monopolies and Mergers Commission decided that some particular merger or transaction was not against the public interest and the European Commission took a different view, the view of the European Commission would prevail.
We are committed, as I said, to increasing competition within the Community. The effect of competition at the Community level is something which our competition authorities can and do take into account. It is already necessary for the Monopolies and Mergers Commission to take into account, when judging the effect of a merger on the public interest, all matters appearing to it in the circumstances to be relevant. If they are relevant, considerations raised in community merger control arrangements—whatever that may mean—could also be taken into account. The United Kingdom is of course already subject to the requirements of the Treaty of Rome, including the provisions designed to preserve competition in the Common Market.
Amendment No. 245M, the second of these clauses, seems, I fear, to he addressing a non-existent problem. I do not see how the words,
both inside and outside the European Economic Community",add anything to the expression, "outside the United Kingdom". If somewhere is outside the UK, then 1185 undoubtedly it is either inside or outside the European Community.The provision of the Fair Trading Act in question is specifically concerned with competitive activities outside the United Kingdom by those producing or supplying goods and services from within the United Kingdom—in other words, exporters—and with the need for them to be competitive. The existing wording seems to us to be perfectly adequate.
Perhaps I may say to the noble Lord, Lord Peston, that there may be a misapprehension that because the United Kingdom competition authorities are concerned with competition solely in the United Kingdom they do not take account of the effect of competition at the Community level. This is simply not true. The scope for competition from outside the United Kingdom—whether in the Community or in the wider world—is always taken into account in looking at whether a merger would damage competition in the United Kingdom. On the other hand, simply because there is a potentially competing firm somewhere in Europe it does not follow that we can always accept a loss of competition in the United Kingdom because the structure of the market may limit the scope for overseas competition.
It may help if I give two examples. The market for bus services is highly localised. There is no scope for competition from operators elsewhere in the United Kingdom, let alone in the Community, so I referred a merger between two companies running bus services in Bristol and Avon. On the other hand, the market for bus manufacturing is an international one, so I decided not to refer the merger between Volvo and Leyland Bus, although they together had more than half the United Kingdom market, because of the competition from other European manufacturers. In those circumstances there was a sufficiency of supply elsewhere within the Community to ensure that a competitive market would remain to those people wishing to buy buses in the United Kingdom.
As I said, simply because there is a potentially competing firm somewhere in Europe it does not follow that we can always accept a loss of competition in the United Kingdom, because the structure of the market may limit the scope for overseas competition. Nor can we accept uncritically the argument that a loss of competition in the United Kingdom should be accepted in order to enable United Kingdom firms to compete more effectively internationally. This is a siren song which is occasionally sung by those who would like to see larger aggregations of companies. Like other claims about offsetting benefits, we would normally expect these to be justified before the Monopolies and Mergers Commission which will balance the likely damage to competition against the likely benefits of a larger aggregation.
United Kingdom competition authorities must concern themselves with competition in the United Kingdom and not competition at the wider international level, except to the extent that competition on a wider international level impinges on competition in the United Kingdom. Thus our interest in exporters is because they bring benefits to 1186 the United Kingdom and our interest in imports, or the potential for them, is because of their effect on competition in the United Kingdom. This will be unaffected by the new clause. I hope that I have satisfied the curiosity of the noble Lord, Lord Peston, and that in all the circumstances he will now be happy to withdraw the amendment.
§ 6 p.m.
§ Lord Lloyd of KilgerranWith great respect to the Secretary of State, his brief does not seem to me to have addressed itself to a fundamental issue in relation to the activities of parliamentarians of both Houses. We are sincerely trying to improve the Bill in Committee. No political questions arise here. We are trying to improve the Bill because, if it becomes an Act, it will be read by industrialists and people outside who will not be aware of the fact that parameters in relation to EC directives and decisions have to be taken into consideration.
Therefore I believe it would be very helpful to industrialists and to lawyers to have a reference in this part of the Bill to the fact that notice must be taken of the European Community in relation to these controls. I have here the McKenna Law Letter which is published by an eminent firm or solicitors. I read this letter out on the fourth day of the Committee stage of the Bill. The article in the law letter discusses the issue of central merger control and the European Community.
I again remind the Committee that the publication is issued by an eminent firm of solicitors with a large number of clients. That firm deals with commercial matters every day. The article states:
the issue remains current and businessmen cannot afford to ignore the policy in Brussels when making decisions on mergers and acquisitions—or 'concentrations' in Commission parlance.All the amendment suggests is that it is made clear to anybody who advises clients to take account of a parameter involving the European Community. That is all the amendment suggests.
§ Lord PestonWe have slightly jumped the gun. We have not yet come to my Amendment No. 245H. Most of what the noble Lord has said is relevant to that amendment. I shall not speak on that matter yet. I shall go back to my amendment No. 245G and to the reply that the Secretary of State made.
§ Lord Lloyd of KilgerranI am sorry, but I do not understand what the noble Lord, Lord Peston, is saying. Which amendment is he referring to?
§ Lord PestonWith respect, we are discussing Amendment No. 245G, which is an amendment concerning the operations of our merger policy, viewed as our merger policy. I am about to move Amendment No. 245H, which covers precisely the ground that the noble Lord, Lord Lloyd of Kilgerran, has referred to. That amendment concerns taking account of European merger policy. I have not yet spoken to Amendment No. 245H because I was dealing with Amendment No. 245G. This is a purely procedural matter. I was simply doing what I was told, which was to stick to the amendment that I was moving.
§ Lord Lloyd of KilgerranWe are indulging in a little bit of semantics here. The amendment the noble Lord is moving mentions the European Economic Community in general terms.
§ Lord PestonThis misunderstanding is my fault. I did not intend the reference to the European Community to mean at that point the Community's competition arrangements. The points I raised, and the points to which the Secretary of State addressed himself, concerned such matters as the nature of the market we were considering. I entirely accept that I have blurred the issue here. But I should like at least to get my blurred issue dealt with first, because I felt that for the second time today the Secretary of State put my argument better than I could have done. His bus analogy was precisely what I had in mind.
I believe the Secretary of State said that the market for bus services is clearly a local market. Indeed, sometimes it is not a market that covers the whole of the United Kingdom but merely a part of it. We fully accept that in some cases a local market is the relevant market. We are concerned with the nature of competition within that market.
The Secretary of State then moved on to consider the bus manufacturing market. He pointed out that that was a European market. For all we know, it may become a world market in due course. The relevant point concerns the level of competition that exists. We agree that it is the level of competition that must be taken into account. I thought the Secretary of State made that point extremely clearly.
I moved Amendment No. 245G to draw attention to the second kind of example that the Secretary of State gave. The Secretary of State said that there are always other factors to be taken into account when assessing competition. I believe that is broadly what he said. But I make the point that rather than merely state that other factors should be taken into account, this is the occasion to make the other factors explicit; namely, to state that those other factors refer to the European Community.
I do not think, given the reply of the Secretary of State, there is anything between us on the matter. I entirely agree with what the Secretary of State said. My only concern is that I should have liked, perhaps only symbolically, to have Europe mentioned in the legislation at this stage to indicate that the European dimension would be taken into account.
§ Lord Young of GraffhamI shall confine my remarks to this amendment, although I suspect that what I say may have utility in other amendments. I fear that the noble Lord, Lord Lloyd of Kilgerran, misunderstood what I said. He is of course perfectly entitled to question any amendment. We want to improve the workings of the Bill. I accept that totally. I should be the first to accept any amendment which improved the workings of the Bill.
Where I suspect the noble Lord, Lord Lloyd of Kilgerran, has not understood the effect of the amendment here is simply that Amendment No. 245G would require the Monopolies and Mergers Commission in determining the public interest to have regard to the desirability of maintaining and 1188 promoting effective competition in the European Community as well as in the United Kingdom.
Amendment No. 245M concerns another point that I have dealt with. It is not the purpose of the Government of the United Kingdom, or of the Monopolies and Mergers Commission, or of the Secretary of State for Trade and Industry then in office, to promote effective competition in the European Community. It is our task to promote effective competition within the United Kingdom. In the bus case that I mentioned and in many other cases we look at the size of the market and assess whether there is effective competition for the consumer within the United Kingdom. In the case of local bus services, we would be concerned with the consumer who was resident in, say, Bristol and Avon.
As regards purchasing buses, we would be concerned with purchasers of buses resident within the United Kingdom. If one can effectively buy buses from Europe quite easily, we would take into account the availability from Europe. I shall give the Committee another example. When British Steel was sold it had over 60 per cent. of the United Kingdom market. But it was considered that such was the competition from Europe that there was no question of a monopoly position developing. If British Steel decided to increase its prices, there would be sufficient competition from Europe to ensure British Steel remained competitive.
So the test the whole time is to consider the amount of competition available to a particular consumer. The consumer may be a man or a woman standing at a bus stop somewhere, or somebody wanting to buy steel, a particular service or a bus, but the test can only apply to the consumer within the United Kingdom. One of the great difficulties of merger policy is that people have to concentrate quite hard and investigate a particular case to determine the test of competition to the consumer in that market. There can be no hard and fast rules or percentages. That is why I and, I suspect, my successors for generations to come will always have difficulty with this topic.
§ Baroness SeearIf we use geographical terms are we not confusing the issue? We are concerned with competition within the relevant market, whatever the geographical limits of that market may be. By introducing geographical terms we confuse the issue and distract attention from the fact that it is the relevant market we are concerned with. Is that not the position?
§ Lord Young of GraffhamThat is precisely the point. We are concerned with competition in the relevant market. The test of that competition is the particular consumer concerned, be he a man, a woman or an industrial company. So if we added the words "European Economic Community" to the amendment, they would confuse the issue.
§ Baroness SeearThe words "United Kingdom" would also be confusing.
§ Lord Young of GraffhamYes, I accept that. Our writ of course only runs within the United Kingdom. The test of competition only applies within the United Kingdom.
§ Lord EzraIf we keep in the words "United Kingdom" surely we must in the new context add the words "European Community". We are talking here about merger policy and approaches to mergers. There are any number of firms which are preparing themselves for the larger market by merging and linking up. I mention the case of GEC and Siemens. If that had been purely related to the UK market, I presume it would have been regarded as far too large a grouping. But because it is seen in the EC context in the new situation it is regarded quite differently. The EC introduces a specific new dimension which has to be taken into account in relation to merger policy. I do not understand why it need be left out.
§ Lord Young of GraffhamI fear that I cannot even listen to the seductive words of the noble Lord, Lord Ezra, about that merger. My mind must remain completely blank until such time as I hear from the Monopolies and Mergers Commission.
There is a competition authority responsible for competition within the Community. That authority is the Commission. It is the Commission's responsibility to ensure that a competitive environment exists throughout the Community. It is the responsibility of the Government of the United Kingdom to ensure that a competitive environment exists in the United Kingdom. We do not have any responsibility for the competitive environment in France, Germany, Italy or elsewhere.
That is why we object to the proposed new clause. In determining the public interest Section 84(1) would have us have regard to the desirability of promoting and maintaining effective competition within the Community as well as in the United Kingdom. Clearly that cannot be our task. That is the task of the Competition Commissioner in Brussels. I have no doubt that Sir Leon Brittan will discharge it very effectively.
§ Lord Lloyd of KilgerranI am sorry to intervene again. Perhaps I may draw the attention of the Minister to Section 84(1)(e). One of the criteria to be applied in determining the public interest:
maintaining and promoting competitive activity in markets outside the United Kingdom on the part of the producers of goods, and suppliers of goods and services in the United Kingdom".All the amendment does is draw attention to the fact that matters relating to the European Community are of importance.
Lord MorrisI am very glad that the noble Lord raised that point. That is the major reason why I believe that the amendment is unnecessary. The point is already covered by Section 84(1)(e). A very good example was quoted—at the wrong time in the debate—of the EC operating in that field in the case of Minorco Societe Anonyme and Consolidated Gold Fields. It was concluded that the effect on the platinum market was against the public interest within the EC, which includes the United Kingdom. The Monopolies and Mergers Commission in this country did not consider the matter because it regarded it as being outside its remit.
§ Viscount TorringtonPerhaps I may make an observation. It seems to me that the noble Lord, Lord Lloyd, is talking about the desirability of including advice in the Bill. Surely the purpose of the Bill is to enshrine an Act and not advice as well.
§ Lord Young of GraffhamI suspect that this is a debate that we may well have again on a later amendment. Perhaps it is as well to ventilate the matter now. The United Kingdom is subject to the requirements of the Treaty of Rome. The treaty is paramount: it includes provisions designed to preserve competition throughout the European Community.
The Commission has powers to consider mergers under Articles 85 and 86 of the treaty. The noble Lord, Lord Lloyd of Kilgerran, referred to that fact. In addition, because of the confusion which that creates, with the Commission having power to unscramble anti-competitive arrangements, a European merger control regulation has been proposed. At present it is a moot point whether the draft merger regulation represents an improvement on Articles 85 and 86. We are negotiating the matter and I hope that during the course of this year the draft regulation will be improved. At present we are not convinced of that and are maintaining a general reservation.
It is clear that the responsibility for competition within the Community as a whole is the Commission's. Responsibility for competition within the United Kingdom lies with the Government of the United Kingdom. There may be occasions in the future when the Commission will be dissatisfied with competition in the United Kingdom and may wish to do something about it. That is a point which is yet to be determined. Above all else I am happy to say that it cannot be part of my responsibility to concern myself with competition matters in Spain, Portugal, Greece or any other country in the Community.
§ Lord PestonPerhaps I may bring this extremely interesting discussion to a close. I have a sense of responsibility that in drafting the amendment badly I may have led us on to the wrong track.
What the Secretary of State said earlier is what I also believe and his analytical apparatus is exactly the one that I have in mind. Following on from what the noble Baroness, Lady Seear, said, it was probably silly to refer to any geographical area. It is clear that the MMC is concerned with competition in the United Kingdom; that is not the problem. I am drawing attention specifically to the fact that in a great many more cases than were anticipated in 1973, and than many people realise today, the relevant market is Europe. Therefore in the new world of 1992, in relation to competition in the UK the Secretary of State's bus supply case will be much more the typical case.
I realise that the amendment is hopelessly badly drafted and has put us onto several wrong tracks. However, its purpose is to bring us into the new spirit of the times and to include that in UK legislation.
Having said that, I do not believe that there is any substantive difference between any of us on the issue. 1191 I shall read what the Secretary of State has said. I may well come back to the matter because I still believe that I am right in wanting to include a European element in the Bill. In the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 6.15 p.m.
§ Lord Peston moved Amendment No. 245H:
§ After Clause 97, insert the following new clause:
§ ("EEC considerations . After section 84(1) (public interest) of the Fair Trading Act 1973, insert—
§
(1A) The Commission shall take into account all considerations raised in EEC merger control arrangements.".
)
The noble Lord saidAmendment No. 245H in the names of the noble Lord, Lord Williams of Elvel, and myself concerns a matter which we have been discussing. This is the amendment which raises a question about a point which the Secretary of State has already raised. We are committed to the Treaty of Rome. The treaty is essentially a competition treaty; it relates to free markets and the extension of competition. Whether or not it is written onto the face of the Fair Trading Act 1973, what is set out here must be the case in any event.
The first reason for putting down the amendment is to ask the Secretary of State to confirm that the Commission must do as the amendment proposes and that the EC merger control arrangements take precedence, as suggested by the noble Lord, Lord Lloyd of Kilgerran. Is that the case?
If that is the case, would it not be helpful to write it into legislation of this kind? As the noble Lord, Lord Lloyd said, anticipating what I intended to say, it will very much influence what British businessmen will do. We do not want to spend hours going over the ground yet again. I simply ask two questions: is the Commission obliged to take account of the European dimension on merger policy, and if it is, would it not be a good idea to make that abundantly clear in the Bill? I beg to move.
§ Lord Lloyd of KilgerranI apologise for having made my speech prematurely. I shall not delay the Committee any further. I support the amendment.
§ Lord Young of GraffhamI boasted to the noble Lord, Lord Peston, about having an open mind. Even though I do not agree with him on this occasion my mind is still open.
There is no question about the matter: the Treaty of Rome takes precedence in law. The arrangements at which the Commission arrives take precedence over everything else. The difficulty arises because the situation is very fluid and changes quickly. I have been in my present post for less than two years. When I first took up the responsibility it was not clear that Articles 86 and 87 had relevance to competition policy. It was certainly not as clear as it is today. The position may be clearer in a year's time if we were to withdraw our general reservation on the proposed European Community merger control regulation and we had a different regulation. There is also a series of 1192 other directives which may appear. I suspect that it would only confuse the issue if we were to adopt the proposed new clause. There may well be new directives; there may one day be a European equivalent of the Monopolies and Mergers Commission.
European law is paramount in these matters. The amendment as presently drafted appears superfluous and will in the long run be confusing in view of the flexible way in which the commission changes.
§ Lord PestonI thank the Secretary of State for his answer, which is, to a considerable extent, reassuring. I believe that the noble Lords, Lord Ezra and Lord Lloyd, and myself were right to raise this matter. I shall not pursue it now because I should like to reflect on precisely the points that the noble Lord has made about the fluid nature of the matter. However, I repeat my point that both the Government and those of us in Opposition must make much more clear to people the significance of what is happening in Europe and the significance of 1992 in terms of legislation generally. That is why I have pursued the matter. I shall return to it in this and other Bills. Having said that—I do not in any sense criticise the Secretary of State's answer—I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 245J and 245K not moved.]
§ Lord Peston moved Amendment No. 245L:
§ Before Clause 98, insert the following new clause:
§ ("Director to consult employees. . In section 76 of the Fair Trading Act 1973 (functions of Director in relation to merger situations), at end insert—
§ "(2) In exercising his function under this section the Director shall take all such steps as are reasonably practicable to seek representations from relevant employees and employee organisations and from relevant consumer groups." ")
The noble Lord saidIn moving this amendment, I shall speak also to Amendment No. 245N. I apologise to the Committee for now introducing a rather controversial—although important—matter. Although it was dealt with peripherally when we discussed the burden of proof, I believe that I should now deal with it much more explicitly. It may demonstrate where we and the Government are perhaps somewhat divided.
When we discussed the burden of proof, arguments were put forward by the Secretary of State's noble friends to the effect that we simply needed to look at the way the markets worked—notably the financial markets—and that the real criterion was whether shareholders and such people take their decisions freely in free financial markets. They appeared to believe that, if the creation of mergers or monopoly situations was in their interest and the merger or monopoly went through the market and there was no obvious example of fraud or malpractice, that was all that had to be borne in mind in that respect. They claimed that there were various other matters in the criteria section of the Fair Trading Act, and that was that.
I do not believe that that conception of either society or the economy is acceptable to us. I should like to believe that it is not acceptable to the other side. 1193 of the Committee either and that it is therefore entirely reasonable that the director general and the MMC should have a wider view of those from whom they are obliged to take representations. In saying that, let me emphasise that taking representations does not mean doing what the people concerned say; it simply means giving them an opportunity to say what they think.
Perhaps I may start with consumer groups. I referred earlier to Adam Smith, but I go back to my point that enterprise exists for the sake of consumers; I do not believe that consumers exist for the sake of enterprise. The consumer interest is paramount. When I am asked why I favour competition, I answer, "Because that is the way to protect the consumer". On the other hand, I am bound to say that I simply do not believe that consumers are always immediately protected just by markets as they operate in our society and economy. That is why consumer groups have come into existence. We all agree that bodies such as the National Consumer Council on the one hand—whose leader has just joined this House and from whom we expect to hear in due course on these matters—and voluntary bodies such as the Consumers Association do a valuable job. We all agree that—as the expression goes—they are not backward in coming forward in such matters. With respect to them, we are simply saying that we should like to write something more definite into the statute so that, instead of leaving it as a matter of choice on the part of the director-general or the commission, he will have to give them a few moments of his time. I press the consumer issue very strongly.
The employee issue is rather more interesting in a way because in my experience—certainly when the Labour Party was in power—employees took an interest in mergers and other such matters. However, I do not reveal any secrets when I say that they were not always necessarily on the side of competition. In saying that, and asking that they and their representatives should have their views taken into account, I do not say categorically that those views would always be to the effect that a merger should not go forward and that competition should be à outrance.
I believe that I am particularly honest in emphasising the need to take employees' views into account because I do not think that their views would always agree with mine. But nowadays we legislate for the economy and a society that will be there in the next century after we have gone. Our vision is one in which the employee has a much more important role in these matters than seems to have been the case in the past few years. If we are to live in a society in which people feel that they are members of society and that their interests are typically taken fully into account in matters such as mergers which affect their lives, we should at the very least reassure them that they will be asked what they think.
We are not misleading those people. I do not suggest that one should go to an employee and say, "You will be the deciding force". I prefer a society in which that is typical and in statute, as in other countries, and in which employees are asked what they think rather than one in which they are regarded 1194 in the crude language of economics as just another factor of production that others choose to manipulate. I press the employee aspect of the matter strongly, but no more strongly than the consumer aspect. That is the nature of my argument and I hope that it will commend itself to the Committee. I beg to move.
§ Lord Young of GraffhamI should say to the noble Lord, Lord Peston, at the outset that I have nothing against the idea of obtaining representations from consumer organisations or employees. I suppose that my quarrel with the noble Lord about these amendments is that I believe they are unnecessary. Indeed, I go further than that: by singling out two particular interest groups, they appear to downgrade all the others. I should like to explain that argument.
It is my experience that when there is a merger—particularly a contested bid such as we are discussing—the employees, their representatives and consumer organisations are not slow to come forward. Indeed, they provide an important contribution to the advice that the Director-General of Fair Trading gives to me about mergers. In appropriate cases, he may actively seek their views. Such groups are very much encouraged to make their views known to the director-general. I have tried to emphasise in speeches to the business community and in the brochures that I have issued and circulated widely around the country, that it is the director-general whom they should approach in the first instance, not me, as he has the duty to advise me and I rely heavily on his advice in reaching my decisions.
To that extent, the amendment seems unnecessary; the problem is not one of encouraging representations. If such representations are not forthcoming, that in itself may indicate that the merger does not raise major public interest implications. The amendment would require the director-general actively to canvass views on over 300 cases a year, the great majority of which raise no public interest concerns. I believe that that would place an undue burden on his resources, not to mention the organisations which might in those circumstances feel bound to respond. The effect would be to slow down the whole process.
I now come to my second point. To single out employee and consumer organisations is to ignore all the other groups that may have an interest in mergers. Let me give some groups: the industrial suppliers, competitors and customers of the merging firms, the relevant trade associations, local chambers of commerce and so on. Before the noble Lord, Lord Peston, asks, I should make it clear that I am not proposing to add all these to the list. My point is that it is impossible to make it comprehensive. For that reason, I believe that it is invidious to single out certain groups to the exclusion of others. If they are sufficiently interested, they will come forward.
The case of the Monopolies arid Mergers Commission is rather different. Here it has already been decided that there are public interest issues warranting thorough investigation. My duty under Section 64(6) of the Fair Trading Act is to arrange for references to be published in order to bring them to the attention of those likely to be affected. The 1195 commission is also under a duty in Section 81 to take into consideration representations made by interested parties or by representative bodies and to give them the opportunity of an oral hearing unless this is impracticable or unnecessary. If necessary the Monopolies and Mergers Commission even has power to require people to submit information or to attend hearings, although in practice it finds that it can rely on the co-operation of those concerned.
In addition, the Monopolies and Mergers Commission takes appropriate steps to alert interested groups to the reference and invites them to submit views. This is over and above the requirement on me to publish the reference. Those invited to submit views will almost always—I wish to assure the noble Lord—include relevant employee organisations and consumer groups. So the duty which the amendment would impose, while it is not difficult to fulfil, is unnecessary, since it happens at present.
But that is not the whole story. From whom it is appropriate to seek views, and what steps should be taken to do so, will, I suspect, vary according to the subject of the reference. Again, it would be wrong to single out particular groups for special treatment. In short, I believe that these new clauses tackle a nonexistent problem. It is not our experience—certainly not during my time, and, so far as I am aware, previously—that those likely to be interested are unaware of mergers which concern them. Nor are we failing to obtain their views. Seeking views where appropriate is an intrinsic part of the work of both the Office of Fair Trading and the Monopolies and Mergers Commission.
I hope that I have reassured the noble Lord, Lord Peston—perhaps he will reflect on my words—that his concerns on this score are already adequately catered for. I trust that in all the circumstances he will feel able to withdraw his amendment.
§ Lord Lloyd of KilgerranOn these Benches, we support the theme of Mr. Peston—
§ Lord Lloyd of KilgerranI am so sorry. We support what the noble Lord, Lord Peston, said in support of his amendment. Having listened to the Minister, it appears that he has not accentuated the position of the employee, as did the noble Lord, Lord Peston. The position of the employee is of increasing importance, as the noble Lord, Lord Peston, said, in merger situations. I should have thought that it was a good industrial relations point to emphasise that the director shall take all such steps that are reasonably practical to seek representations from relevant employees. If the amendment stopped there, would the Minister have any sympathy with it?
§ Baroness SeearBefore the noble Lord replies, perhaps I may make one brief point. The Secretary of State has said that this is always done. However, there is a world of difference between having a right to be heard and knowing that it is very likely that you will be called. Those are not the same things. It is the right to be heard that we wish to be embodied in the Act.
§ Lord Young of GraffhamPerhaps I may respond to the noble Lord, Lord Lloyd of Kilgerran, and to the noble Baroness. I hope that noble Lords on all sides of the Chamber agree that because of the nature of the eight to 12 references a year—they are publicly known; everybody goes on pilgrimage to the Monopolies and Mergers Commission—there is no difficulty if one puts an obligation on it. The difficulty lies with the Director General of the Office of Fair Trading: he has up to 400 merger situations a year. Sometimes these are mergers arising from bids and are contested situations. Many are friendly mergers. Some are what are described, probably incorrectly, as creeping mergers where the shareholding goes up until at some stage the director general decides that there is sufficient influence on it that a merger situation arises. To be forced to go to people to get the views of unions (when, of the 400 and so cases a year, only eight to 13 are referred) would create alarm and despondency in many situations. To alert them to a bid which may not happen, or to something which may not occur, would do far more harm than good.
I am very conscious of the position of employees here. If it were to serve the purpose, perhaps I could take this away and consider some formulation along the lines of Section 81(1)(a) which would mean that the director general would have to take into consideration any representations from those who have an interest. I make absolutely clear that this will not put an obligation on him to seek interest; that would be far too onerous. But it means that he will have to listen to anyone who makes representation to him. I suggest that that is a reasonable compromise in the circumstances.
§ Lord PestonI had not realised that I had been so quiet over the last two years that the noble Lord, Lord Lloyd of Kilgerran, had not yet noticed that I had joined this Chamber. However, that is by the way. The Secretary of State has responded admirably to the concerns of the Committee. I look forward to seeing what he can do to help us here. On the basis of so heartening a response on his part, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 6.30 p.m.
§ [Amendments Nos. 245M and 245N not moved.]
§ 98 [Undertakings as alternative to merger reference]:
§ Lord Williams of Elvel moved Amendment No. 245P:
§ Page 103, line 9, leave out ("in such manner as he may consider appropriate.").
§
The noble Lord said: This is a very small matter. The amendment is designed to seek clarification from the Secretary of State on how the undertakings will be published because,
in such manner as he may consider appropriate
is somewhat vague. We should like to know what manner is appropriate. I should have thought normally that there would be a press release or some arrangement made that would be in legible form, to
1197
use the normal word. Perhaps the Secretary of State will let me know what the Government have in mind with this expression. I beg to move.
§ Lord Young of GraffhamThe words in question, which Amendment No. 245P would omit, relate to the duty that I or my successors would have to publish undertakings given instead of a merger reference, the advice of the director general on the adverse effects they are designed to prevent, and any variation or release of the undertakings.
These words make it clear that the manner of publication is for the Secretary of State to decide, according to what he considers appropriate in the circumstances. They do not qualify the duty of publication, and their omission would not therefore necessarily reduce the extent of my discretion. Publication for any particular purpose is not something fixed and definite. What publication there should be will always depend on the circumstances.
On the other hand, the words make clear that publication must be in an appropriate manner. While it is difficult to imagine any Secretary of State publishing in an inappropriate manner, they would in theory provide a basis for challenging the way the Secretary of State carried out his duty. They thus provide a safeguard for those who might have an interest in the undertakings, who might fail to hear of them if the duty were not properly carried out.
Perhaps I could explain what we have in mind to publish, and when, in a little more detail. We envisage that the Secretary of State will be advised on a merger by the Director General of Fair Trading in the usual way. This advice, if it recommends reference of the merger, could specify possible adverse effects of the merger which undertakings might remove. The Secretary of State would then announce his decision to clear the merger, to refer it immediately or to refer it if suitable undertakings were not forthcoming—with an indication of the adverse effects which the undertakings would be designed to prevent. The negotiation of the undertakings would be done by the director general in much the same way as for undertakings following a report.
When the undertakings were given they would have to be published so that third parties were aware of the position, particularly in view of the rights to bring proceedings following a breach. For the same reason publication of any variation or release of the undertaking is needed. A published statement of the adverse effects that the undertakings were designed to prevent is also needed because the specified adverse effects will constrain the powers to replace undertakings with alternative remedies.
I hope I have persuaded the noble Lord, Lord Williams, that the words his amendment would omit are a useful clarification, which if anything limit rather than widen the Secretary of State's discretion; and that in all the circumstances he will accordingly withdraw it.
§ Lord Williams of ElvelI am most grateful to the Secretary of State. I understand what he says about the initial undertaking and the initial announcement, but the Bill states in new Clause 75H(1)(c):
any variation or release of such an undertaking. 1198 Let us suppose that an undertaking lasts for a year and then there is a variation for one reason or another which may be perfectly legitimate. In what form will the Secretary of State announce it? Presumably it will not be published in a provincial Icelandic newspaper. We need to know that, when they are varied, which may be a year later than the initial undertaking, those who rely on these undertakings are given proper notice.
§ Lord Young of GraffhamI am grateful to the noble Lord. I have been looking for the name of a provincial Icelandic newspaper in which to publish these things for a considerable time. Perhaps he would care to give it to me. I have said that the publication must be in an inappropriate manner. While it is extraordinarily difficult to imagine a Secretary of State publishing in an appropriate manner, that provides a basis for anyone to challenge it. Therefore there is a safeguard for those who might have an interest in the undertaking or for those who might fail to hear of it, if the duty is not properly carried out.
It is difficult because undertakings vary so widely and circumstances vary so much. I suspect it is rather better to leave the duty on the Secretary of State to publish in an appropriate manner, and that will vary according to the case.
§ Lord Williams of ElvelI do not wish to pursue this argument too far because it is a minor amendment. If the words had read:
in such manner as may he appropriate",I would fully accept what the noble Lord said. If it were to go to the court, the test would be whether the Secretary of State had considered that manner to be appropriate. That is the point I am making. The issue would have been stronger if the words had read:in such manner as appropriate".In the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 245Q, not moved.]
§ Clause 98 agreed to.
§ Clause 99 agreed to.
§ 6.45 p.m.
§ Clause 100 [Temporary restrictions on share dealings]:
§ Lord Morris moved Amendment No. 246: Page 105, line 38, at end insert—
((e) where in any event there exists a continuing investigation under section 442 of the Companies Act 1985 or section 177 of the Financial Services Act 1986 into any company falling within subsection (4A), at the time of the publication of that investigation's report, or, if no report is published, at the time of the conclusion of that investigation.").
The noble Lord saidThe purpose of this amendment is to develop the principle behind Clause 100, which, as the Committee will be aware, is making statutory what already is practised under the takeover rules. It is a welcome change in the law. The effect of the amendment would deal with the anomaly 1199 that has arisen and may arise again in the future whereby a reference is made to the Monopolies and Mergers Commission and the Commission cannot take into account the inspector's report—as the Chairman of the Takeover Panel told me—and does not have the clarifying benefit of hindsight in that it cannot see the result of the report of the inspector who in each case will have been appointed by the Department of Trade and Industry. This is a considerable problem.
Under Section 84 of the Fair Trading Act it is clear that it is not only a power but a primary duty of the Commission to take into account the public interest point. As we all know, that is the side note. The problem currently is that so often the department has issued guidelines to the public that the only point that should be taken into consideration involves competition. I do not believe that it is possible to read Section 84 in any other way than the way in which it is written. It is clear that in determining for any purposes:
to which this section applies whether any particular matter operates, or may be expected to operate, against the public interest, the Commission shall"—not may—take into account all matters which appear to them in the particular circumstances to be relevant and, among other things, shall have regard to the desirability— then there are listed all the matters of competition. That is having regard to the desirability among other things.The major point is the public interest point. I fail to understand—and I believe that the general public
fail to understand—how it is possible for any body, be it the Takeover Panel or the Monopolies and Mergers Commission, to consider these matters properly without having the benefit of an investigation which has been set up in order to clarify the facts. It cannot consider these matters properly. The amendment seeks to assist consideration of these issues by allowing the Secretary of State not to act until such time as he has the clarifying benefit of his own report.
I cannot see that there is any problem in relation to this, other than the general principle that hard cases invariably make bad law. That may be so, but in the cases that I have seen that are affected by this it would have a greatly beneficial effect, not least in taking the senior governing body—namely the Department of Trade and Industry—off an extremely uncomfortable Morton's Fork.
The other problem for the Takeover Panel is that it can only consider matters that are before it. It cannot bring to bear any further evidence that might appear later. At an earlier stage in the consideration of the Bill, my noble friend Lord Brabazon of Tara in considering an amendment moved by the noble Lord, Lord Benson, quite rightly and briefly put the position as it is and should be with regard to any self-regulatory organisation. He said that if regulation was to be effective, regulators needed to be able to move swiftly and decisively, sometimes on less than conclusive evidence, if it seemed necessary to do so. I believe the mere fact that the Department of Trade and Industry has set up investigations under 1200 Section 442 of the Companies Act to look into insider dealing can be done only on prima facie evidence for the simple reason that in the nature of these things there has been a conspiracy. It will be very difficult indeed to get hard evidence. In those circumstances they must say that if a stewards' inquiry is taking place all bets are to be off. In saying that I use the fair analogy of the noble Viscount, Lord Falkland, of one of the semi-detached parties.
My noble friend the Secretary of State referred to one of my amendments as being interesting. I hope that this is the one, and I beg to move.
§ Lord Williams of ElvelThe noble Lord, Lord Morris, has raised an interesting and technically difficult point. I am not entirely convinced that his amendment falls in the right place, but no doubt he has been advised about that. I wonder whether his amendment should not only define the period but cover broader terms. No doubt the Secretary of State will comment on that matter.
There is a growing problem because a number of investigations fall under different pieces of legislation. There is the Companies Act and the Financial Services Act, and we are now amending the Companies Act in order to provide new rules for investigations. In my view, they are rightly multiplying because many issues must be properly investigated. There is a growing problem because the more investigations there are the more the parallel issues become confused with them.
Thus, in the case referred to by the noble Lord, Lord Morris, there is an investigation into possible share dealing infringements of one form or another. At the same time, there is a merger situation. In some way we must be able to reconcile two different systems. The noble Lord, Lord Morris, has proposed one way of reconciliation. I have no preference but I believe that the Government must make arrangements to reconcile the procedures as they go along. Otherwise we shall find ourselves in the same kind of trouble as with the Minorco case and possibly other cases.
§ Lord Young of GraffhamIf I have correctly understood the intention of the noble Lord, Lord Morris, it is to maintain in force the prohibition on dealings in each other's shares by parties to a merger which had been referred to the MMC (eight to 13 cases per year) as long as there was a continuing investigation under the provisions of the Companies Act or the Financial Services Act. Indeed, it appears my noble friend wants to curtail all takeovers of, or by, companies which are the subject of such investigations. The prohibition would apply to the bidder company and to the target company.
The amendment as it stands would not achieve this. The prohibition would still apply only where there had been an MMC reference. The starting of a Companies Act or Financial Services Act investigation would not bring the prohibition into operation. However, it would end the prohibition when the investigation ended—which could be before action on the MMC report was finished—and it would not, in our view, prolong the prohibition if any of the other events in new subsection (4B) occurred 1201 first. This is more likely, as investigations under Section 442 can take more than a year to complete. Section 177 investigations are generally shorter but even so take on average 11 months.
My noble friend appears to be under the impression that his amendment would enable the Monopolies and Mergers Commission and the Secretary of State to delay decisions on mergers until Companies Act inspectors have reported. I fear that that will not happen. It will only prevent a bid from being pursued, but in the meantime the Monopolies and Mergers Commission will be required to report and I shall be required to publish its report.
In any case, I have to say that we do not accept the need for such a prohibition, except to deal with the problem which the clause as it stand tackles; that is, acquisitions of shares which might prejudice the outcome of the MMC reference of a prospective merger. The investigations covered by the amendment—into the ownership of companies and suspected insider dealing—are quite separate from the provisions of merger control and the conduct of one does not directly affect the other. It sometimes happens that these investigations stem from events during a takeover, and they very occasionally yield information material to the MMC's inquiry. The law of the land is that should an inspector's report provide new information material to a merger on which the MMC had already reported, that could be considered by the Director General of Fair Trading, who would advise me whether a further reference would be justified. There was recently a fairly prominent case on slightly different grounds.
Investigations can happen at other times and for other reasons. Furthermore, they may well concern persons not directly involved with merging enterprises. Let me expand on that a little. The investigation may relate to the activities of someone connected with the bidding company. It could equally be someone connected with the target company or someone entirely outside both. The fact that an investigation relating to a company's shares is in progress is no reason to protect that company from unwelcome acquisition or to penalise it by restricting its own dealings.
If that were the case we could envisage circumstances in which it became part of the technique of defending bids to throw dust into the air and to make allegations about inquiries solely for the purpose of generating an inquiry. In that case, everyone cries "halt" for a year while the investigation takes place. In those circumstances, one hopes that the bidder will go away. We must be most careful, and therefore I hope that my noble friend will withdraw his amendment.
§ Lord Williams of ElvelCan the Minister expand on part of his answer and respond to the point which I and the noble Lord, Lord Morris, were trying to make? It was that there are different kinds of inquiries and investigations which run in counter currents to the takeover procedure. For instance, the Takeover Panel has certain powers to investigate market dealings, as under certain statutes has the DTI. I shall not quote any cases, but it could easily be that the results of an inquiry by the Takeover Panel or the 1202 DTI affect the takeover situation. For example, 20 per cent. of a company might have been acquired contrary to the law or in circumstances of which the Takeover Panel would disapprove. That might have affected the takeover situation. I am trying to be cooperative but I think that we must find a way of dovetailing the various procedures.
§ Lord Young of GraffhamBefore the Lord sits down, I should like to point out that, as the law now stands, if an investigation produces new evidence I have the power to send it back to the Monopolies and Mergers Commission within six months of receiving the evidence.
With respect, the difficulty which my noble friend faces is that he is confusing two different matters. The first is the investigation into the conduct of the market in shares; that is, insider dealing situations. The second is a monopolies or mergers reference about competition matters.
If an investigation shows that as a result of something which was clearly wrong the course of a merger was affected, I and my successor will have the power to refer back to the Monopolies and Mergers Commission. We can do so under the present law and within six months of receiving the inspector's report. In those circumstances, I trust that my noble friend will withdraw the amendment.
Lord MorrisI understand from my noble friend's original response that his fundamental objections were to the drafting of the amendment. I accept that. I had doubts about whether it appeared in the right part of the Bill.
I ask my noble friend to look at the matter again or to allow me to write to him about it in the meantime, because a serious problem arises. There is a lack of understanding not only in my mind but in the country as a whole. It seems strange that, if a company is undergoing an investigation which might lead to criminal charges, it is still able to benefit as a result of a merger going ahead.
§ 7 p.m.
§ Lord Young of GraffhamPerhaps my noble friend will give way. In that event, if the investigation shows that something wrong has been entered into—and I shall not define "wrong" exactly but my noble friend knows what I mean—and benefit has been gained from that, then I have the power to refer that back to the Monopolies and Mergers Commission. What my noble friend or any amendment similar to his might ask me to do would apply if the target company or the bidding company or parties entirely unconnected with the transaction were being investigated. That would clearly be wrong. Therefore, I have the power to refer back in the event that the aggressor company is doing something wrong. In any other circumstances, it would not be right to take that sort of step.
Lord MorrisThat is the point. It does not matter whether it is the target company, the predator or anybody else. Any deliberate destabilisation of the market upsets people. In the circumstances of a merger or a takeover bid, then I believe that all bids 1203 should be off. From what I have learned this evening from my noble friend, I am convinced that I have the drafting wrong with regard to this point. However, I ask him to consider at a later stage a new attempt to try to make more effective the regulations with regard to these matters which I believe are making many people in the City extremely unhappy. There are many cases where matters have gone wrong. I shall not list them but Members of the Committee know what I am talking about.
Lord Young of GraffliamI should be very grateful if my noble friend will write to me with his very long list of cases where that has happened, because I shall be extremely interested in that. However, there is no possibility that we could stop bids merely because parties entirely unconnected with the transaction had done something wrong. In equity it would be wrong to stop bids when the target company had done something wrong. At present, if the bidder company has done something wrong I have the power to undo that. I hope that my noble friend will reflect on the situation. I should be grateful if he will write to me by all means, but I believe that on mature reflection he will accept that the law has sufficient teeth at present. However, if he cites cases where that has not been so, then I shall look into them.
Lord MorrisI am grateful to my noble friend. I shall certainly take his advice on that matter. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Lord Williams of Elvel moved Amendment No. 246A:
§
Page 107, line 2 at end insert—
("(4M) The Secretary of State may by order delegate his powers under sub-sections (4A) to (4L) of this section to the Securities and Investments Board.".
)
The noble Lord saidThis is a very simple amendment, which asks the Government whether or not there is a case—and this is meant to be a helpful amendment—for allowing the Secretary of State to delegate his powers to the SIB, since these are controller market dealings. I beg to move.
§ Lord Young of GraffhamThe new subsections introduced into Section 75 of the Fair Trading Act by this clause would prohibit parties to a merger which I refer to the Monopolies and Mergers Commission from acquiring each other's shares, except with my consent. The prohibition is designed to prevent the build up of holdings which might prejudice the outcome of the MMC inquiry; it would come into operation when a prospective merger was referred, and would last for the duration of the inquiry.
As was made clear when we considered the amendment of my noble friend Lord Morris, the regulation of securities dealings and the control of mergers are separate matters; and the instruments of one are not suitable for the purposes of the other. In any case, I should make it clear that, even if the powers in the subsection were delegated to the SIB, they would not allow them to impose a prohibition on share dealings. The prohibition only comes into 1204 effect when a merger is referred to the MMC, which only I can do. The sole power under these subsections is to grant consents lifting the prohibition in certain cases. These can be either general or specific; for example, we may well allow holdings up to a certain level—say 10 or 15 per cent.—which would not have a bearing on the inquiry.
Having put the prohibition in place to avoid prejudicing the inquiry, there is no conceivable reason for allowing a body unconcerned with merger control to exercise the power to lift it. That would take the powers to deal with the effects of mergers out of the hands of the competition authorities; nor are the powers suitable for the purposes of securities regulation, as I have explained, even were this desirable. Perhaps, therefore, the noble Lord will agree to withdraw the amendment.
§ Lord Williams of ElvelThis is part of a larger debate as to the role of the SIB which we shall come to in due course. This is not the time to engage on that, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 100 agreed to.
Clause 101 agreed to.
§ Lord StrathclydeI beg to move that the House do now resume until five minutes past eight.
House resumed.