HL Deb 22 January 1996 vol 568 cc797-9

2.51 p.m.

Lord Spens asked Her Majesty's Government:

Whether they intend to change the law which currently appears to permit corporate raiders on the London stock market to use the device of "special dividends" payable by the victim company to finance, in part, takeover activities at a considerable cost to United Kingdom taxpayers.

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)

My Lords, Her Majesty's Government have no present plans to change the provisions of the Companies Act relating to the payment of special dividends. However, we are reviewing the law on financial assistance by a company for the acquisition of its own shares. If the noble Lord has a suggestion to make in that context, I shall undertake to consider it. Her Majesty's Government are of course attached to the principle of equal treatment for both parties to a takeover bid.

Lord Spens

My Lords, I thank the Minister for that Answer. It indicates an encouraging situation. However, is the Minister aware that the scale of the present proposed takeover by Granada of Forte is £500 million in terms of special dividend? That is way beyond any other type of special dividend paid before. It is distinguished by the fact that it is a hostile situation. In order to pay the dividend, Granada will have to change the board of Forte after it has acquired control. It is that aspect which distinguishes the situation. If that position is taken to the extreme, it will soon be possible for one company to take over another without offering any consideration at all. Does not the Minister agree that that cannot be right?

Lord Fraser of Carmyllie

My Lords, I am aware of the broad outline of the bid that Granada made for Forte. However, I am sure the noble Lord will appreciate that it would be inappropriate for me, at this Dispatch Box, to offer any comment on the terms put forward. I can add nothing further to what the President of the Board of Trade said in relation to the desirability of Granada acquiring Forte's motorway service areas. He is awaiting further advice on that aspect of the bid from the Director General of Fair Trading before making his final decision. As the noble Lord is clearly aware from his professional background in the matter, the special dividend device has been used on a number of occasions recently. The specific example he indicates is an extreme one. As I said in my first Answer, we have no present plans to change the provisions, although I am aware of the arguments advanced for such a change.

Lord Clark of Kempston

My Lords, the Question suggests that the special dividend device will cost British taxpayers a great deal of money. However, does my noble and learned friend agree that income tax is paid on special dividends by the recipients?

Lord Fraser of Carmyllie

My Lords, there are some quite difficult considerations affecting those shareholders who are exempt. However, I am advised that the Inland Revenue's present assessment is that the result for the Exchequer by way of special dividend payments will be similar whenever those profits are distributed.

Lord Haskel

My Lords, does the Minister agree that to use shareholders' funds to achieve the removal of a few directors from the board of the target company is also inefficient?

Lord Fraser of Carmyllie

My Lords, the noble Lord is tempting me to offer a judgment on the present takeover bid which is at the centre of financial consideration at the present time. Whether or not the method is inefficient is for those involved in the takeover to determine.

Viscount St. Davids

My Lords, does my noble and learned friend agree that the Question on the Order Paper highlights two separate but not necessarily unrelated problems? The first is the concentration of the ownership of ordinary shares in the hands of tax-free institutions; the second is the taxation of corporate profits which encourages distribution at the expense of retention.

Lord Fraser of Carmyllie

My Lords, I indicated that my advice is that the results for the Exchequer will be similar whenever the profits are distributed. I understood the Question to consist of two parts and indicated that we will be reviewing the law on financial assistance by a company for the acquisition of its own shares. If any views are expressed, I undertake to consider them, but it would be inappropriate for me to say anything further.