§ Lord Diamondasked Her Majesty's Government:
What powers are available to them to prevent the control of major defence contractors in the private sector passing directly or indirectly into foreign hands, and whether they have exercised these powers in recent years in connection with Westland helicopters or any similar contractor.
§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth)The Government have powers under the Fair Trading Act 1973 (following an adverse public interest finding by the Monopolies and Mergers Commission) and under the Industry Act 1975 to prevent the control of major manufacturing undertakings passing into foreign hands. The Government's powers under the Companies Act 1985 to investigate the membership of a company may also be relevant.
Under Section 64 of the Fair Trading Act 1973 the Secretary of State for Trade and Industry may refer to the Monopolies and Mergers Commission any merger which appears to him to meet the criteria in the Act. The Secretary of State may make a reference where it appears to him that it is or may be the fact that two or more enterprises, at least one of which was carried on in the United Kingdom or by or under the control of a UK company, have ceased to be distinct enterprises and that either the value of the assets taken over exceeds £30 million or, as a result of the merger, at least one quarter of all the goods or services of a particular description which are supplied in the United Kingdom are supplied by or to one and the same person or by or to the persons by whom the relevant enterprises are carried on.
If the Monopolies and Mergers Commission finds that a merger may be expected to operate against the public interest the Secretary of State has powers under Section 73 of the Act to prevent the merger or, if it has already taken place, to make an order by statutory instrument providing, inter alia, for the division of a business by the sale of any part of the undertaking or assets or otherwise.
These powers have not been used in recent years in relation to a merger which involved control of a major defence contractor passing into foreign hands.
In the case of Westland, the then Secretary of State announced on 22nd January that he had decided, "on the information at present before him, and in accordance with the recommendation of the Director General of Fair Trading, not to refer the proposed acquisition of shareholdings in Westland plc by,
- (i) United Technologies Corporation of the USA (UTC) and International Holding Fiat SA of Italy (Fiat)
- (ii) a consortium (the Consortium) comprising British Aerospace plc, the General Electric Company plc, Société Nationale Aérospatiale of France, Agusta SpA of Italy and Messerschmitt-Boelkow-Blom GmbH of West Germany
1489 to the Monopolies and Mergers Commission under the provisions of the Fair Trading Act 1973". Part II of the Industry Act 1975 contains provisions which enable the Secretary of State to exercise certain powers in the event of a change of control of a manufacturing undertaking which appears to him to be of special importance to the United Kingdom or of any substantial part of it. Section 12 of the Act defines a change of control as an event resulting in a single person or company (or two or more of them acting together in concert) not resident in the United Kingdom carrying on or acquiring the whole or part of the undertaking or becoming able to exercise 30 per cent. or more of the votes in a company which carries on or acquires the whole or part of the undertaking.
Under Section 13 of the Act, if it appears to the Secretary of State that there is a serious and immediate probability of a change of control of an important manufacturing undertaking, and it appears to him that change of control would be contrary to the interests of the United Kingdom or any substantial part of it, he may by order prohibit that change of control and make a vesting order.
The Secretary of State may also make a vesting order if he learns of circumstances which appear to him to constitute a change of control of an important manufacturing undertaking and is satisfied that the change is contrary to the interests of the United Kingdom or any substantial part of it. A vesting order is made by the Secretary of State with the approval of the Treasury, and directs the vesting of share capital or assets employed in the undertaking in himself or nominees. A vesting order can only be made if the Secretary of State is satisfied that the order is necessary in the national interest and that the interest cannot be protected in any other way.
These powers have never been used.
Under Section 442 of the Companies Act 1985 the Secretary of State may, where it appears to him that there is good reason to do so, appoint inspectors to investigate and report on the membership of any company for the purpose of determining the true persons who are or have been interested in the success or failure of the company or able to control or materially to influence the company's policy. Under Section 442(3) the Secretary of State is required to appoint inspectors if an application is made for an investigation by members holding not less than one-tenth of the issued shares, unless he is satisfied that the application is vexatious.
If it appears to the Secretary of State that there is good reason to investigate the ownership of any shares in a company and that it is unnecessary to appoint inspectors for the purpose, he may himself require information from persons under Section 444 of the Act.
If in connection with an investigation under either Section 442 or 444 it appears to the Secretary of State that there is difficulty in finding out the relevant facts about any shares, he may by order under Section 445 of the Act direct that the shares shall until further order be subject to the restrictions of Part XV of the 1490WA Act. These restrictions include that the shares in question may not be transferred, and that no voting rights may be exercised in respect of them.
Privatised companies
In addition, the Government can make arrangements in privatisations to protect against subsequent foreign takeover of the company where this would not be in the national defence interest. Such action has been taken in the case of British Aerospace plc. It is the Government's intention to make arrangements to ensure that Rolls-Royce Limited, Royal Ordnance plc and Vickers Shipbuilding and Engineering Limited remain in UK control after they are privatised.