Orders of the Day — Glaxo (Proposed Merger)

– in the House of Commons at 12:00 am on 9th February 1972.

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10.3 p.m.

Photo of Mr Edward Milne Mr Edward Milne , Blyth

As with the subject matter of past Adjournment debates of mine, tonight's deals with a matter which, although it may have wide national and international repercussions, interests me because of its effect on my constituents and my constituency.

The village of Cambois until four years ago had a proud mining history. Then the pit was closed and, in common with many others in South-East Northumberland, the village found that unemployment was its lot. But as a result of the efforts of the local authority, new jobs were found. Glaxo Laboratories Ltd. moved to Cambois and was officially opened last October. The mining village had moved into the pharmaceutical field, into the area of science-based industries. The adaptability of the workpeople in the area was recognised. The factory provided some 230 jobs, and there were prospects of a greater number of jobs—at least 2,000. Those prospects were shared with about 46 other plants throughout the country. The era of redundancy and closures, with all the attendant uncertainties, was over for the village.

On 21st December, the following telegram was sent to the Secretary of State for Employment and the Secretary of State for Trade and Industry, with a copy to me. It was sent by Mr. Brian Hodds, manager of the Cambois factory. It stated more clearly than any words of mine can precisely what the situation is. It said: The Works Committee, an elected body representing the 230 employees at the Cambois factory of Glaxo Laboratories Ltd., met yesterday to discuss the proposed takeover of Glaxo by Beecham. The following resolution was carried:'The Cambois Committee representing all grades of staff in the factory is unanimous in supporting the Board of Glaxo Group in opposing the Beecham takeover proposals. We are the newest factory in Glaxo and have been in operation for only 8 months but we are in full production and have already exceeded our targets. The majority of the staff come from the North-East of England where there are major unemployment problems. We appreciate the action of the Directors of Glaxo in investing in this area and we are confident that Cambois will play its part in the future prosperity of the Group.'During discussion members expressed concern at the effect that a change in top management might have on the working conditions and future prospects of staff at this factory and were particularly worried lest the long-term growth on this site so vital to employment prospects in this community might halted. So, this mining village, with its new developments and future prospects, was caught up in the tangle of City manoeuvring and high finance. I met the staff on 4th January and discussed matters with them. I wrote to the Secretary of State for Trade and Industry and asked him to refer the matter to the Monopolies Commission. Two or three days later, we were informed that he had decided against doing so. I wrote to him expressing my surprise and disappointment.

Speaking for the workpeople employed in the subsidiaries of Glaxo throughout the country, where his union has a considerable membership interest, Mr. Alfred Allen, General Secretary of the Union of Shop, Distributive and Allied Workers, and a senior member of the General Council of the T.U.C., among other complaints on this issue to the Secretary of State, said that it was deplorable that Press reports were the … first and only information our members and the Union have received about the Beecham group bid. It is, of course, true that there had been talk in the trade Press and elsewhere on this matter. Studies had been in progress for some time with a view to a merger of Glaxo and Boots. These studies have now been finalised. Links between Boots and Glaxo would be a true merger as opposed to a blatant takeover bid by Beecham. There is also the question of the disquieting nature of reports about anti-trust litigation pending against Beecham in the United States, which would cost over £1,000 million.

We are dealing to a large extent with a classic case of the development of firms in this country and their ability to provide the work our people need and the things that the country requires, fitting in with our economy both at home and abroad. The planned merger between Boots and Glaxo would be a logical combination of two of the strongest British pharmaceutical companies. The complementary nature of the two companies meant that a planned merger would provide maximum opportunity for growth without the cutbacks of rationalisation which are often the only justification for amalgamations.

The matter was summed up in the issue of Chemical Age of 10th December, 1971, by Sir Ronald Edwards, Chairman of Beecham, who said: Medium scale has its virtues and hitherto has served the United Kingdom industry well, but times are changing. Sir Alan Wilson, Chairman of Glaxo, said: So far as I can see, the pharmaceutical industry will scarcely be affected whether we enter the Common Market or we do not. The reason for this is that within the E.E.C. as at present constituted there are numerous non-tariff restraints upon the free circulation of pharmaceutical products. … In reply to my letter to the Secretary of State I received a letter on 25th January from the Under-Secretary of State which said: We recognise fully the importance of these proposed mergers and the significance of the British-owned pharmaceutical companies concerned in them. The decision not to refer the Beecham offer was not an easy one to make. … You referred particularly to the concern of the staff of Glaxo at Cambois. The uncertainties felt by employees of the companies involved in proposed mergers is very understandable. … The hon. Gentleman went on to say that the reference to the Monopolies Commission: … could well mean a longer rather than a shorter period of uncertainty for those employed by the firms in question. This unsatisfactory reply prompted an Early Day Motion which expressed concern at the Government's failure to refer the take-over bid by the Beecham Group to the Monopolies Commission and further regretted that no information was given by Beecham Ltd. at the time of the take-over effort to disclose the details of the anti-trust suits currently pending in the United States. The Secretary of State may not have been aware of what some of his former colleagues have been up to in the City since he left it to join us on the green benches at Westminster.

Had he pricked up his ears, read the trade journals and the American Press and the other sources of information available even to back-benchers, he would have realised that some investigation was needed. While he was talking about uncertainty and concern for the employees he was failing to tackle it in the right places. I am a layman, but I can read the journals and the reports. There are disturbing factors in the extensive antitrust legislation currently in process in the United States, operating against the Beecham Group. The Beecham take-over bid makes wholly inadequate disclosures of material potential liability affecting the value of shares, the shareholders, the employees and to some extent the economy of the country. One complainant in the United States is claiming damages in excess of 10 million dollars, while retail druggists have put forward a suit for damages of about 350 million dollars. These figures can be trebled by American Statute. Two of the complainants could be awarded punitive damages for alleged common law fraud and these damages could reach in one case a total of 1,000 million dollars and in another 700 million dollars. So if one takes merely the surface of the matter one can see that there are problems of considerable importance and that the decision is important.

It is perfectly true that the Secretary of State has now decided to send both developments, the Glaxo and Boots merger, and the Beecham takeover bid, to the Monopolies Commission. We shall have to wait about five months before a decision is made, but when one looks at the figures which I have mentioned, when one looks at the nature of the charges and of the punitive damages for alleged common law fraud, even allowing for the extravagance of American legal claims and the extravagance, sometimes, of details in the American newspapers, one can see that, as I have already said, there are matters of deep involvement.

There is a previous case, which is still going on in the area. If one looks at a report of February, 1969, one finds the Tetracycline case, a matter involving a number of companies including Bristol Myers whose portion of the settlement programme in this particular suit could be such as to be comparable with that which we are discussing and be approximately 19 million dollars, and that with the four other companies involved with Bristol Myers about 120 million dollars could be involved.

It is perfectly true that on 21st January there was a Press release by Beecham's saying: Guesses about the possible financial consequences of an adverse judgment are totally meaningless since both the timing and circumstances of a final decision are completely unknown. It says: The figures in the Glaxo circular are irresponsible and misleading. Beecham has already made adequate provision against any likely contingency in its accounts. This may very well be the case, but it sounds vague and nebulous in the circumstances of this case. Moreover, when the Beecham Press handout talks about "adequate measures" having been taken, one asks, adequate for whom? Adequate for the company's auditors? Adequate for Hill Samuel? Adequate for the public? Adequate for my constituents at Cambois? Or adequate for the country's economy? We have to find out what is meant by "adequate".

It is impossible in the time for an Adjournment debate to detail all the specific points and complaints, but this issue raises matters of national importance. The economic, social and industrial well-being of whole areas of Britain are undermined because as a nation we lack adequate procedures and regulations concerning information which giant companies must divulge and disclose at the time of take-over bids. So we are dealing not only with this particular take-over bid but with the whole question of procedure in this field. A take-over on inadequate information, such as would be the Beecham takeover of Glaxo, would be to the detriment of the country and of its pharmaceutical industry, and of the employees within that industry, and—as I said at the start—most of all, of the people I am proud to represent in this House.

10.19 p.m.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I am always glad when I have a chance to discuss the affairs of the Blyth constituency, even if indirectly, for, as the hon. Member for Blyth (Mr. Milne) knows, I once contested that constituency—unsucsessfully, in the event. I am glad the hon. Member has raised this matter, which spreads in importance far beyond Blyth because it is a matter of great national importance.

The hon. Gentleman will appreciate that I cannot discuss the rival merits of the Beecham and Boots bid for Glaxo because these matters are now before the Monopolies Commission, and the last thing I wish to do is to prejudice through anything I might say the Commission's consideration of the issues. Nor is it the custom to discuss the reasons why Governments have made references of mergers to the Monopolies Commission. There is a long tradition behind this, and the right hon. Member for Grimsby (Mr. Crosland), on 29th February, 1969, when addressing the Manchester Chamber of Commerce, said: Successive governments have taken the view that we must retain complete freedom to judge in each individual case what benefits and detriments there might be, and what factors might or might not be relevant. This is inevitable.

I will say what I can to the hon. Gentleman about the present situation. The Beecham bid was made on 2nd December and, after careful consideration and analysis, the Government came to the conclusion that it would be wrong to make a reference of the Beecham bid. All the base suggestions that have been made, not by the hon. Gentleman but by another hon. Gentleman and some other people, that the Government had sinister motives I utterly repudiate and reject. The decision was taken on the industrial facts of the case.

There was prime facie evidence, however, when Boots made its bid on 12th January that very different questions were raised. A significant degree of vertical integration was involved. Strong fears were expressed to us about the proposed merger by independent pharmacists and those who concern themselves with the freedom of consumers to choose.

In this confused situation we concluded that the various factors had better be examined by the Monopolies Commission. The two bids cannot be seen in isolation, and it would have been impossible and wrong to have referred only the latter bid. This is a complex situation, which I am sure the hon. Gentleman will agree justifies a flexible approach, and that we have shown.

This is not the first time that something like this has happened. On 26th January, 1966, the right hon. Member for Grimsby announced that it was not the intention of the Government on the information then available to refer to the Monopolies Commission the proposed acquisition of Amalgamated Dental Company by the Dental Manufacturing Company Limited. A week later a counterbid by the Dentists' Supply Company of New York was announced, and the Board of Trade decided that a reference of both merger proposals would serve the public interest, and an announcement to this effect was made on 10th February. So this is not a unique situation.

To refer a merger proposal is not to stop it. It is entirely up to the Monopolies Commission to make its recommendation after it has considered all the evidence and the issues involved. If the Monopolies Commission decides that the merger should be allowed, the Government have no power to forbid it.

The hon. Gentleman may well ask what is the policy for making references. It might help if I were to formulate some of the criteria which the Government have in mind. One cannot formulate set rules. It would be impossible to do so because if one could there would be no need for a Monopolies Commission; it would be decided by the Government. The rôle of the Commission is to decide in this difficult area of policy whether or not a merger is against the public interest. The object of making a merger reference, therefore, is to ask the Monopolies Commission to see whether it would result in the elimination or reduction of competition and whether this, if it happened, would be against the public interest.

The factors taken into account are the structure of the market for the product; whether competition exists; the ease or difficulty on the part of new firms of entry into the market; whether there is competition from imports; economies of scale in the process of manufacture; and whether it would justify concentration. Will the merger lead to increased efficiency and lower prices, and will it enable the company to meet foreign competition which may have already concentrated? These are the sort of ideas which motivate a Government in deciding whether to make a reference. This can often lead to a dilemma. The hon. Member will remember some of the concentrations brought about by the Industrial Reorganisation Corporation which led to serious concern as to whether a monopoly situation was being created. He would also remember the debates on the General Electric merger and the British Leyland Motor Company merger where the two difficulties of competitive policy versus the need for industrial efficiency were threshed out in public argument.

The hon. Gentleman understandably expressed concern about employment prospects caused by such a merger in his constituency, and in particular at the Glaxo Laboratory at Cambois. He suggested that we should use the power of reference to the Commission, or the threat of such reference, on the ground of preserving employment. I am discussing this concept in the abstract, not in relation to the Beecham-Glaxo-Boots matter where it would be wrong to give explanations and where some assurances were given by Beechams on this score. Beechams said it saw no reason on present information for any significant redundancies or plant closures if its bid was successful. To that extent the hon. Gentleman has misinterpreted the situation as regards Beechams. But in general I would say that it is obvious that these considerations enter into our decision, as my right hon. Friend said in answer to a Question on Monday, though not perhaps in the direct way it had been suggested they should. There are no criteria in the Act laying down the grounds on which a reference could be made. It might he helpful, therefore, if I were to expound the Government's thinking on this point.

If a proposed merger or takeover presages an increase in efficiency to match foreign competition or to give reduced prices, it could involve what is called rationalisation and, in turn, perhaps the closing down of uneconomic units to concentrate production in larger-scale efficient plants. This could result in redundancies. But to deny it could result in future uncompetitiveness and, hence, more widespread redundancies in the future. Provided adequate competition remains for the product, one might not feel a reference in such a case was justifield. But if a merger or takeover appears to be directed towards a reduction of competition by knocking out a competitor, it could equally result in widespread redundancy but with no corresponding benefit in efficiency and competitiveness. This would be a likely candidate for a reference. In between those extreme cases there is a widespread area of grey where the only policy is for my right hon. Friend to use his best judgment.

What would be wrong would be to use reference to the Commission as a sort of blunt instrument to prevent mergers with employment considerations alone in mind. In any such case it is likely that the Commission would eventually allow the merger and nothing would have been achieved except delay and uncertainty.

The ownership of companies is not a guarantee of future employment. One shares with the hon. Gentleman every concern about the unpleasantly high level of unemployment in his constituency. But the future of the successful plant and factory there depends not on whether a certain merger or takeover takes place but on whether the enterprise itself—the factory—is profitable and successful and on whether there is demand for its products. Glaxo alone cannot guarantee to provide employment for ever, nor can Beecham if it was successful in taking over Glaxo. It would be a factor making for more unemployment if the Government were to adopt a policy of denying industrial change and restructuring and rationalisation because they believed it would meet a short-term anxiety, but which in the long-term would result in uncompetitiveness and failure to sell in the markets of the world. To treat the Monopolies Commission as a sort of instrument for preserving employment in the short-term could actually be counterproductive. What really matters is that the plant is an efficient and effective producer in the industry in which it operates.

I share the hon. Gentleman's concern over unemployment. In Blyth it has risen to 11·7 per cent. from 9·8 per cent. a year ago. In his constituency as a whole, the total number of unemployed persons is 2,849. However, I can tell him that there are 2,900 jobs in prospect over the next four years, and that is a situation which is happier and more promising than it is in many other parts of the country.

I can understand the concern which the hon. Gentleman described over the future of the Glaxo factory at Cambois. But I hope he will assure his constituents that the merger and the takeover proposals which are now to be examined by the Monopolies Commission are in no sense a threat to employment. It is a modern, efficient, and by any standards not yet fully manned-up factory. Its future depends not on the persons who own it but on whether it is an efficient producer which earns its living for those who own it.

Question put and agreed to.

Adjourned accordingly at twenty-eight minutes to Eleven o'clock.