Orders of the Day — Takeover Bids

– in the House of Commons at 10:54 pm on 3rd March 1987.

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Motion made and Question proposed, That this House do now adjourn.—[Mr. Ryder.]

Photo of Mr Bill Walker Mr Bill Walker , North Tayside 11:15 pm, 3rd March 1987

This Adjournment debate is about matters that I have been pursuing for some time in connection with the takeover problems that exist in the City. I have two objectives. They are to seek out the truth about the Guinness scandal, and to see that justice is seen to be done. My hon. and learned Friend the Under-Secretary of State will recollect that I raised the question of skulduggery in the City in my Adjournment debate on 25 July 1985. Sadly, the evidence that I presented on that occasion about Ernest Saunders, Guinness and Morgan Grenfell was not acted upon by the Minister responsible, by the takeover panel, or by the guardian of the City's morals, the Bank of England.

The failure to act resulted in the activities which have become known as the Guinness scandal. The reputation of the City and the good name of many City institutions have been damaged by what I have described in earlier speeches as skulduggery, greed and ministerial incompetence. I wish to make clear that I do not include my hon. and learned Friend or his colleagues at the Department in these remarks. He and his team of inspectors are to be congratulated on the way that they have set about clearing up the appalling mess that he inherited.

Unfortunately, in a matter as complex as the Guinness affair, any investigation or inquiry must take many months. While I have no doubt that all those who are guilty of breaking company law or the takeover code will in time be brought to book, the damage that the Guinness affair is doing to the Scotch whisky industry will, if not arrested, be horrendous.

I should like to draw my hon. and learned Friend's attention to the damage that is being done to what used to be Scotland's most efficient and most profitable independent whisky company—Arthur Bell and Sons. It was a fine company which increased sales and profits every year. It never made anyone redundant, and when it opened new modern blending and bottling plants it bussed the workers from Perth to Dunfermline and from Leith to Broxburn. Every employee was a shareholder, and each year shares were issued to all who worked for the company. An equation was used to work out the issue, and, provided the dividend was covered by a multiple which was fixed and agreed, everyone, from the chairman to the girls in the bottling hall, was allocated the same value of shares.

The company won the Queen's award for exports and technology in the year prior to the takeover. It was a slim, highly motivated company with superb management and a highly motivated work force. This was the company that the takeover panel allowed to be described as having "lost its way". If only every company in Scotland could have lost its way like Bells, how happy we would all be and how different would be the industrial and manufacturing prospects in Scotland today.

Ernest Saunders and Guinness acquired that company. To do so they gave certain firm pledges which persuaded the Scottish institutions to accept the Guinness offer and Scottish merchant banks to join Guinness in its takeover attempt. What were these pledges? They are on page 9 of the Guinness offer document dated 27 June 1985. The first pledge says: Bells will continue to be managed from Perth as an autonomous company, subject only to overall strategic direction and normal disciplines of financial reporting. The second pledge says: We guarantee that there will be no redundancies within Bells as a consequence of Bell's joining the Guinness Group. The third pledge says: We have given an assurance that the rights of the employees of the Bells Group will be fully safeguarded and that their conditions of employment, including existing pension rights, will not be adversely affected by our acquisition of Bells. As I said earlier, these were firm offer document pledges. It is not unreasonable to suggest that the failure to honour the pledges, so solemnly undertaken, must be considered to be against the interests of Bell's employees and shareholders and, I suggest, against the public interest.

I shall deal with each pledge in turn. First, Bell's is no longer an autonomous company. The overseas sales department has been moved to Hammersmith in London, The United States sales operation has been closed down, and the promised advertising in the United States has not been implemented. Export staff have been told that they are being moved from Bell's to Dewars. A Bell's brand has been sold to Lonrho. Bell's premium brand is being sold at a discount and is now just one of the many brands in the Guinness stable.

In a letter to me dated 24 February 1987, the new chairman of Guinness, Sir Norman Macfarlane, states: Bell's has been well integrated into the beverage group run by Mr. Vic Steel. So much for Bell's remaining autonomous. Whatever it is today, it most certainly is not an autonomous company. Therefore the first pledge that I mentioned has been broken, and, what is more, broken deliberately. It did not happen accidentally.

The second pledge has also been broken. There have been redundancies, and more are likely to follow if the practice of discounting Bell's premium brand continues. Brand name and reputation are everything in the Scotch whiskey industry. Unlike beer, whisky cannot be offered at a discount to vendors and the public without destroying the reputation and the up-market image of the brand. Years of hard work can be destroyed in a few months. What price job security if the up-market image of Bell's premium brand is destroyed by down-market trading practices? That may turn stock into money in the short term, but it will destroy the brand in the long term. Redundancies in Bell's would then become inevitable and be a direct consequence of Bell's joining the Guinness group.

The third pledge about employee rights has also been broken. As an independent company Bell's issued shares to all employees. The share issue was dependent on the company being able to cover the dividend by an agreed multiple, as I said earlier. Each year every employee was issued with the same value of shares. The chairman and managing director received the same issue as the girls on the bottling line. In today's circumstances, which have been widely reported in the financial press, Guinness may not be able to pay a dividend and certainly it is unlikely to cover the dividend by the agreed multiple. Today The Scotsman has a headline which reads: City alarm over Guinness profits. I shall not bore the House with all the details, but the article clearly states that provisions will have to be made for certain problems. I shall deal with those problems later.

Consequently, the employees of Bell's cannot expect to receive an issue of shares, as they would have expected under their independent management. The problem cannot be blamed on adverse trading conditions. It is the direct consequence of the way in which Guinness has been managing Bell's and the rest of the Guinness empire. More than £200 million has been moved out of the Guinness group of companies on the instructions of the directors.

Possible lawsuits and massive claims for damages are also in the pipeline. Legal opinion in Scotland is now coming round to the view that every shareholder of Guinness, Distillers and Bell's will have grounds to claim against Guinness that their interests have been adversely affected by the Mafia-like manner which has been the Saunders' way of managing Guinness. The mind boggles at the sort of legal nightmare that may be ahead. The lowest claim for the total volume of damages that may be faced by Guinness in cash terms is put at £500 million. That is a conservative claim. I have heard it put as high as £1,000 million in some other quarters.

I remind my hon. and learned Friend the Minister that Bell's did not wish to be taken over. He will also remember that at the time when Bell's was attempting to offset the Guinness efforts to take it over I and other Scottish Members fought vigorously to prevent it, especially the hon. Member for Livingston (Mr. Cook), who has a long and distinguished record of doing everything he can to protect his constituents who are affected. I remind my hon. and learned Friend that Bell's employee shareholders did not sell out to Guinness. Each and every one refused the Guinness offer, although it could have given them thousands of pounds in their hands. Not for Bell's employees was the quick and easy buck. How different they are to the likes of Ernest Saunders and others who were motivated by greed. Bell's employees wished to remain independent.

What has been the reward for such loyalty? Let me examine the circumstances of the export sales staff. The overseas sales employees are being moved to Distillers, their export organisation in the United States has been scrapped and individuals have been made redundant, contrary to the Guinness pledges. Export and sales executives have had their salaries reduced by 25 per cent. and a new salary has been introduced which requires them to achieve given case sales targets against profitability and personal assessment. They have also had a reduction in the class of travel they enjoy and the quality of hotels used. All that is in contradiction to the firm pledge about conditions of employment.

Is there a message for the Government in all this? I believe that there is. It is that if we, the Government and the Conservative party, are serious in our attempt to persuade firms to issue shares to employees and to introduce share incentive schemes to encourage better production and to improve loyalty to the company, we must also have measures on the statute book which protect employee shareholders from predators like Ernest Saunders, the Guinness directors and merchant banks such as Morgan Grenfell. If we do not have such statutory powers, we must introduce them now.

Part of the message must also be that legislation, such as the Fair Trading Act 1973, must be applied in every possible legal manner to protect the interests of employee shareholders. As Winston Churchill used to prescribe, what is wanted is "action this day". Failure to act will lay the Government open to the charge that the Conservatives can find time to introduce measures to protect employees from unfair trade union activities, but they have neither the time nor the will to implement present legislation or to introduce new measures to protect employee shareholders.

If it was right— I believe that it was—to introduce measures to allow employees the right to work, it must also be right to protect employees from the likes of Ernest Saunders and the other directors of Guinness who have corporate responsibility for what happened when he was in charge.

Photo of Mr Bill Walker Mr Bill Walker , North Tayside

No.

The Guinness family directors and the executive directors appointed by Ernest Saunders should not be allowed to keep the spoils. They sat in the board room and allowed the Guinness affair to happen. If the directors are allowed to retain control of Bell's, the employee shareholders and others whom we may wish also to become employee shareholders cannot be blamed if they decide to have no part in schemes which embrace the issue of shares as part of an employee's working conditions.

My warnings were ignored in July 1985, but I hope that they will not be ignored today. Indeed, in some ways I was treated like a leper, but I was no leper; I saw the leopard's real spots and drew attention to them. Bell's is slowly being killed off by a thousand changes. The company, which was an institution in Perthshire, is disappearing. It was unique in Perthshire. There was no other company in that area like it.

The only way to prevent its destruction is to disinvest it from Guinness and restore it to the former directors and the employee shareholders. I am confident that there would be no problem in raising City finance for such an operation.

On another aspect of this unhappy and sad affair, my hon. and learned Friend the Minister is aware of my quest to find the truth about the Guinness takeover of Bell's. He knows that I have supplied him and his inspectors with all the information that I have. He has received copies of all the correspondence that I have received. Some of the correspondence has been most unflattering to myself, but I have made sure that my hon. and learned Friend and his inspectors received it.

I draw my hon. and learned Friend's attention to my recent correspondence with the present chairman of Guinness, Sir Norman Macfarlane. In particular, I draw his attention to the 14 questions that I put to Sir Norman in my letter of 16 February 1987, and to the questions in my letter of 25 February 1987. I remind my hon. and learned Friend of those questions. In my letter of 16 February I asked Sir Norman:

  1. "1. Why did Mr. Peter Stevenson of Noble Gossart write to you in terms which specifically stated 'that Raymond Miguel and Bell's must not be sold down the river by the General Accident'?
  2. 2. Why did Mr. Peter Stevenson, who, I have been advised, may be a business associate of yours, subsequently leave Noble Gossart?
  3. 3. Why did you not offer to Raymond Miguel the Bell's Chairman, the chance to put to you a non-executive director of the General Accident the case for Bell's remaining independent? I am advised that you do admit to meeting Ernest Saunders a number of times during the takeover, so why did you not give the same even-handed treatment to Bell's?
  4. 4. Can you confirm that the Executive at the General Accident responsible for this kind of investment, Mr. Ian Menzies, was on vacation when the decision to sell out to Guinness was implemented?
  5. 5. Can you confirm that on the Monday of the last week for acceptance of the Guinness offer, the General Accident sent to Morgan Grenfell their acceptance of the Guinness offer with strict instructions that the acceptance was not to be announced until after the Friday deadline, because the General Accident did not wish to be seen to be 'selling Bell's down the river'?
  6. 6. Can you confirm that Andrew Gifford, a former Personal Assistant to the Liberal Leader, Mr. David Steel, M.P. and Mr. Gifford's company, GJW, were advisers to Guinness during the Scotch Whisky takeovers?
  7. 7. Can you confirm that you were invited by Ernest Saunders to join the Guinness Board?
  8. 8. Can you confirm that Bell's sales and marketing employees have had their mode of travel and accommodation standards reduced and that their salaries have been reduced by 25% and also that the new salaries are dependent on profit achievements, whisky case sales and personnel assessments?
  9. 9. Can you confirm that Bell's premium brand is being offered for sale at a discount and that the famous Bell's label may soon be changed?
  10. 10. Can you confirm that some of the Bell's Head Office staff will soon be transferred to Dewars and that the promised Bell's sales drive and advertising in the USA has not been implemented? And also that there has been substantial reductions in UK advertising, including the cancelling of Bolus spots?
  11. 11. Can you confirm that the Cherrybank Gardens Trust will continue to enjoy the support of Guinness and that the Chairman of the Trustees will continue to serve in that capacity?
  12. 12. Can you also confirm that the Bell's house in Hay Street, which has been used by Perth women who were in difficult circumstances, will continue to allow the women access in the future?
  13. 13. Can you confirm that Bell's other good local deeds, such as support for children's parties and activities, will continue?
  14. 14. Can you state what the Guinness Board intend to do about the pledge given to myself and other Scottish MPs and also, I understand, to Mr. Peter Tyrie, that the Gleneagles Hotel was to become the flagship of an international group of hotels?"
My two questions in my letter of 25 February were: Can I ask you to confirm that you told me 'that Ernest Saunders, whom you described as a liar, had during the Bell's takeover offered you the chairman's post at Bell's?'Can you also confirm that you said 'that as Bell's were a competitor of your firm's major customer—Distillers—you were unable to accept the offer?'

Another question which I put to Sir Norman at the meeting with him on 18 February, and which he did not answer, was: if Sir Norman was not involved in the decision by General Accident, why did he write to General Accident requesting that the decision with regard to the Bell's investment should not be taken in his absence? Sir Norman was afraid that he was going to be absent from one of the meetings.

My hon. and learned Friend the Minister is aware that I believe that a concert party was in operation during the Guinness takeover of Bell's. Such a concert party would be against the takeover code. Consequently, Sir Norman's failure to answer my questions is not clever. It will encourage the view that Sir Norman has something to hide, and it would be very sad if that view were encouraged. In view of the track record of senior Guinness officials and appointees, it would be unfortunate if Sir Norman were to be wrongly branded.

Another question which has never been adequately answered is why the leader of the Liberal party — I warned him that I would raise this matter—who had no constituency interest and no knowledge of Bells, should have said that he advised Bells shareholders that the best interests of Bell lie in accepting the Guinness bid without delay. He continued: in the interests of the shareholders and of the future security of Bell's trading position, the investors in Bell would do well to accept the Guinness bid without waiting for further damage to be caused by maverick manoeuvres. I remind my hon. and learned Friend the Minister of the agreement by Guinness to pay the merchant bank advice costs of Bells director, Peter Tyrie. This agreement was made during the takeover and no declaration of that agreement was made by Guinness or Mr. Tyrie during the takeover and the Quayl Monro account was paid. The value of this account was £51,000. It was material to the way that Mr. Tyrie behaved and had an impact on the way in which the institutions reacted to his breaking ranks.

I believe that there is sufficient evidence for my hon. and learned Friend the Minister to declare that the public interest is affected by what happened during the take-over and since. Yesterday, I received a written answer from my right hon. Friend the Secretary of State for Trade and Industry to my question asking what criteria he uses in deciding the degree to which the public interest is involved in matters falling for decision by him. He replied: There are no absolute criteria. The matters taken into account depend on the circumstances of the case and the relevant legislation.

I love the nice, wide, sweeping choice which is available. I hope that my hon. and learned Friend has noted that the hon. Member for Dundee, East (Mr. Wilson) in a ten-minute Bill proposes the setting up of a Scottish takeover panel. That is merely a manifestation of the effect of this matter in Scotland.

I hope that my hon. and learned Friend will respond positively to my speech and will give hope to my constituents who work for Bell's and wish that fine company to be disinvested from Guinness and restored to independence.

Photo of Michael Howard Michael Howard Parliamentary Under-Secretary (Department of Trade and Industry) 11:38 pm, 3rd March 1987

My hon. Friend the Member for Tayside, North (Mr. Walker) is to be congratulated both on his success in securing this Adjournment debate and on the determination with which he pursues issues such as this which he considers important to his constituents.

My hon. Friend has raised this evening a number of concerns relating to recent takeover activity and my Department's role in monitoring both the conduct and the impact of takeovers. I cannot, as he will appreciate, comment on all the aspects of the particular case which he has mentioned tonight, and which indeed he has raised with me on a number of occasions in the past, for these are still under consideration, but I shall respond to some of the points which he has raised and illustrate some of the procedures and powers at my Department's disposal for examining takeover bids and any potential public interest effects which they may have.

I do not believe there to be any justification in my hon. Friend's criticism of my predecessor, my hon. Friend the Member for Edinburgh, Central (Sir A. Fletcher), who replied to the debate in 1985. It is impossible to act in circumstances such as these unless there is sufficient evidence on which to act, as I shall demonstrate. I do not believe it would have been appropriate for my hon. Friend to institute an inquiry on the basis of the evidence which was available to him.

The motion on the Order Paper refers to the role of the DTI in monitoring takeover bids. The Department's main role relates to the period before a proposed acquisition takes place. There are well-established procedures for this under the Fair Trading Act 1973. The Act lays down a three-tier procedure, under which the Director General of Fair Trading has a duty to advise my right hon. Friend, in respect of all mergers involving a transfer of assets of at least £30 million, or a market share of at least 25 per cent. whether the merger should be referred to the Monopolies and Mergers Commission. Our policy is that references are made primarily on competition grounds, though the possibility of reference on other public interest grounds is not excluded.

The MMC is required to consider whether the merger is likely to operate against the public interest, and report to the Secretary of State. Only if the MMC reaches an adverse public interest finding does the Secretary of State have discretion to prevent the merger, or take other steps which he considers appropriate to remedy the adverse effects identified by the MMC. In the case of a completed merger, one remedy open to him would be divestment of the merged enterprises.

Hon. Members will also be aware that a review is also under way of the law and policy on mergers and restrictive trade practices. As far as mergers are concerned, the review is focusing on the legislative framework provided by the Fair Trading Act and the policy which is applied within that framework. We have had a large number of submissions to the review and these are being considered carefully. Work on this is continuing; but one thing is already clear —that there are no easy or straightforward answers to the complex issues which have been raised.

As my hon. Friend is aware, power to refer a merger normally lapses six months after the event. If, however, it appears to the Secretary of State that material facts are brought to his notice or made public that were not disclosed at the time, he has a discretion whether to make a reference to the Monopolies and Mergers Commission. If the commission makes an adverse finding, the Secretary of State has discretion to remedy or prevent the adverse effects identified by the commission through the normal powers available to him.

My hon. Friend is particularly interested in this provision, and has suggested that it might apply to Guinness's takeover of Bells in 1985. I cannot comment on that or any other particular case, but I must stress that the power has never been used, and before using it my right hon. Friend would need to be satisfied on two counts: first, that "it was or might be the case" that previously undisclosed material facts had been brought to light—that is, facts which were material to the original decision as to reference but which were not disclosed at the time; and, secondly, that there was a genuine public interest issue to be addressed by the MMC. His decision would have to be made in the light of all the circumstances prevailing at the time.

One of the grounds upon which my hon. Friend argued for divestiture was that Guinness had not honoured a number of undertakings in the offer document sent to Bell's shareholders, but departures from undertakings or intentions expressed in an offer document do not necessarily argue for annulment of an offer which succeeded and has been carried into effect.

This is not to say that no consequences should attach to an offer document containing statements which the offeror knows to be false or misleading. Section 13 of the Prevention of Fraud (Investments) Act provides for criminal sanctions in such a case. My hon. Friend will not expect me to comment on the possibility that a particular person or persons may have committed a breach of the criminal law. The inspectors who are already conducting inquiries will be looking into the matters which he has raised.

I hope that—although there is a limit to the extent to which I have been able to comment on the specific case about which I know my hon. Friend the Member for Tayside, North is concerned — I have been able to demonstrate that we have in place a range of measures to scrutinise both the conduct and the effects of takeovers. We are, however, ready to acknowledge that recent developments—for example, in the volume of mergers and the conduct of takeovers — may be making new demands on our law and policy. For these reasons. we are currently engaged in the review that I have mentioned.

Photo of Mr Hector Monro Mr Hector Monro , Dumfries 11:44 pm, 3rd March 1987

I think my hon. Friend the Member for Tayside, North (Mr. Walker) was most unfair to Sir Norman Macfarlane and the new management of Guinness, who have set out to develop the whole of the Guinness beverage empire in Perth, to the advantage of that area, and to develop the Scots whisky industry as one would hope. It would be quite unfair that this should go—

The Motion having been made after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at sixteen minutes to Twelve o'clock.