Mergers (Policy) (Hansard, 30 October 1984)

§ Mr. Fletcher

In the light of recent experience I have been reviewing, in consultation with the Director General of Fair Trading, my policy on interim action following a reference to the Monopolies and Mergers Commission of a prospective merger situation. Under section 74 of the Fair Trading Act 1973 the Secretary of State may, following a merger reference, make an order to prevent action which might prejudice the reference or impede the taking of any action under the Act which may be warranted by the commission's report on the reference. The purpose of these powers is not to preserve the status quo at the time of the reference. It is that the MMC should not be impeded in its investigation nor obstacles placed in the way of any necessary action following a finding that the merger might be expected to operate against the public interest. Interim action has normally been directed at the amount of shares that the bidding company should be able to acquire, the extent to which the voting rights attributable to the shares held by the bidding company should be restricted, and the freedom of the bidding company to acquire assets of the target company. Where the bidding company is subject to the rules of the City code on take-overs and mergers, interim action can take account of the restrictions on share purchase which these rules impose. In recent years, it has usually been possible to secure satisfactory undertakings from bidders on that basis. However, in the light of problems that have arisen in certain recent cases I propose to adopt the following policy, subject of course to my duty to consider each case on its merits and in relation to the purposes laid down in section 74. In considering the application of this policy in individual cases I shall have the benefit of the advice of the Director General of Fair Trading.

I will seek to prevent the bidding company from acquiring power to exercise material influence by limiting the acquisition of shares to a specified level. What that level is will be for consideration in each case taking account, for example, of the pattern of other shareholdings. But, by way of guidance, this is normally likely to involve setting a limit at about 15 per cent. If the bidding company has, when the reference is made, already acquired shares beyond the point at which the question of the power to exercise material influence arises, I shall seek to prevent any material increase in its shareholding and to restrict the voting rights of the bidding company in respect of shares in excess of that point. I shall normally seek to impose restrictions on the acquisition of assets of the target company. This policy will usually be implemented by the 870W seeking of undertakings by the Director General of Fair Trading from the bidding company. Appropriate action will however be taken by order if necessary. In cases where, after a reference, undertakings cannot be negotiated before the bidding company will be in a position to take action which would not normally be considered appropriate in the circumstances, I will be prepared to make an interim order which will hold the position pending the negotiation of appropriate undertakings. The terms of interim undertakings will in future be published as soon as they are given. Undertakings secured following MMC reports will be published similarly.