I am most grateful to Mr. Speaker for deciding to select for debate this important issue—the implications for competition policy of the closure of Matthew Brown Brewery, Blackburn, by Scottish and Newcastle Breweries. The House will know that it is most unusual for members of the shadow Cabinet to seek an Adjournment debate, even on a matter of grave constituency importance. When I discussed the matter with Mr. Speaker about 10 days ago, he said that he thought that he could fit it in the following Thursday because 22 November looked like a very quiet day. We can all be wrong. None the less, I am most grateful for the opportunity.
On Friday 9 November Scottish and Newcastle, the owner of Matthew Brown, announced without notice the complete closure of the Matthew Brown brewery in Blackburn from early next year with a loss of a minimum of 150 jobs. The closure decision was in flagrant breach of categorical undertakings to keep open the Blackburn brewery given by Scottish and Newcastle to the Monopolies and Mergers Commission in 1985 and repeated on many subsequent occasions in 1987, 1988 and 1989.
The question raised by Scottish and Newcastle's conduct is identical to that which arose in the takeover of Distillers by Guinness—whether undertakings freely given by directors of companies in pursuit of a takeover of another company should be enforceable, or whether the Government are to stand idly by and allow company directors recklessly to make undertakings about the future conduct of a business and then breach them with impunity.
I shall briefly state the facts. The Matthew Brown brewery was established in 1875, and moved to its present site of the Lion brewery in the Little Harwood area of Blackburn in 1927. I first got to know the company in the mid-1970s. From then until the final takeover by Scottish and Newcastle in 1987 Matthew Brown was a prosperous and profitable regional brewery highly regarded by many City analysts, as my files make clear.
In 1985, Scottish and Newcastle launched a bid for Matthew Brown, valuing the company at about £100 million. The bid was strongly contested by the company, by consumers, by trade unions and by the whole east Lancashire area. It was seen as an attempt by Scottish and Newcastle not to extend consumer choice but to cut out part of its competition.
From the beginning, there was the gravest suspicion about Scottish and Newcastle's integrity and intentions, and the belief, confirmed by events, that it wanted Matthew Brown's pubs but not its brewery.
The 1985 bid was referred to the MMC, to which I gave written and oral evidence. It reported in November 1985 in Cmnd. 9645. The commission concluded that the bid was not against the public interest, but it did so in negative terms, saying:
We discern no material advantages to the public interest arising from the proposed merger; but the question before us is whether the merger may be expected to operate against the public interest, and in our view there are not sufficient grounds for such an expectation.
It was a finely balanced judgment and, as was made clear in paragraph 7·25, one critical matter that was taken into account was an undertaking by Scottish and Newcastle about the future of the Blackburn and, as it happens, the Masham breweries.
Does my hon. Friend accept that one of the concerns in the wider Lancashire area is that, in view of what has gone before, not only will we see the tragic loss of jobs in the brewery to which he referred but that the administrative and office jobs which the brewery at the moment says will remain will also be lost? Previous experience has led to great suspicion about what will happen.
I agree entirely. There are two reasons for our expecting that those jobs will be moved. First, one cannot trust anything that the senior directors of Scottish and Newcastle now say. I am sorry to have to make that statement, but I am afraid that that is the reality. Secondly, it made sense to have the administrative headquarters of Scottish and Newcastle at Matthew Brown only while it was a going concern, and every other aspect of the brewery operation has been run down.
The MMC's report includes an undertaking from Scottish and Newcastle which says:
that is, Scottish and Newcastle—
have stated categorically, publicly, and in writing that without any question whatsoever the Blackburn and Masham breweries are sacrosanct for continued brewing purposes.
There could not be a more clear, categorical, copper-bottomed, 24-carat gold undertaking for all time about the future of the Blackburn brewery.
The hon. Gentleman may know that we are facing the closure of Greenall in my constituency, with the loss of some 500 jobs. Its capacity will be transferred to a major brewer —Allied. Does he believe that the brewing industry may be a developing structure with less competition and diversity, which is completely at odds with what the Monopolies and Mergers Commission would want? Will he call for the Office of Fair Trading to investigate this developing lack of competitiveness?
I entirely accept what the hon. Gentleman says. I am glad to acknowledge that the hon. Member for Hyndburn (Mr. Hargreaves), who is sitting next to the hon. Gentleman, is, like me, concerned about the employment prospects of some of his constituents who work for the brewery. I accept what the hon. Member for Warrington, South says, but although the arrangements of the Monopolies and Mergers Commission may be a reason for closing Greenall Witney, they certainly are no justification for the closure of Matthew Brown, as I hope to make clear in a moment.
The 1985 bid was cleared by the Monopolies and Mergers Commission, albeit reluctantly. Not only did Scottish and Newcastle give an undertaking to the Monopolies and Mergers Commission, but Alick Rankin, the then chief executive of Scottish and Newcastle, wrote to me on 20 March 1985, in anticipation of the report, saying:
I believe therefore that our proposals will bring growing benefits both to Matthew Brown and to Blackburn.
Scottish and Newcastle gave another material undertaking not to acquire another brewery. Paragraph
531 of the report states that when Scottish and Newcastle was asked whether it would seek to acquire further brewery companies, it said that
it had no further plans for any takeover of breweries at the present time. If it achieved what it set out to achieve in acquiring Matthew Brown, it would conclude that development of other parts of its business was its prime priority.
The first breach of the undertakings occurred in September 1986 when, contrary to that promise not to acquire another brewery—one should bear in mind the fact that once it had clearance from the Monopolies and Mergers Commission it continued to seek to purchase Matthew Brown—it purchased the Home Brewery, Nottingham. That is a material fact in this saga of disreputable conduct by Scottish and Newcastle, because part of the capacity that is being closed at Matthew Brown in Blackburn is being transferred to Home Brewery, Nottingham, which was purchased contrary to its undertaking.
Although it was cleared in 1985, the original bid failed marginally. In 1987, Scottish and Newcastle upped its bid to £186 million. By then, I and others had better informed ourselves of its true intentions. It had made some poor management decisions which had led to overcapacity in its Manchester brewery, its Chorley distribution centre and the additional capacity at Home Brewery, Nottingham. As it was paying almost twice as much as it had offered two years before, it could make a return on that amount of capital only if it closed Matthew Brown's brewery and distribution and substituted its products for Matthew Brown products.
I put those points to Mr. Gavin Reed, who is now Scottish and Newcastle's group managing director, at a meeting on 18 October 1987, but he categorically denied them. I was not convinced, but he said that Blackburn would be the main producing part of the group for Matthew Brown beers and its main north-west headquarters. He said, and I have this in my contemporaneous note:
I don't believe the risk to employment exists at all.
When asked how Scottish and Newcastle would get its money back, he said that it would expand take-home trade, that the Manchester brewery mainly brewed lager, that it would not close the Blackburn lager brewery and that it would keep Blackburn as a distribution centre.
The undertakings given in 1985 were repeated in the offer document that was issued in 1987. It said:
The Blackburn and Masham breweries are important to the success of Matthew Brown's business and have an assured future under S and N's long-term plans for the combined business.
In 1988, Elders IXL tried to take over Scottish and Newcastle. The boot was on the other foot, and Scottish and Newcastle came to see east Lancashire Members of Parliament, including my hon. Friend the Member for Burnley (Mr. Pike) and the hon. Member for Hyndburn (Mr. Hargreaves).
The hon. Gentleman is right to use the word, "used". We have been used. Scottish and Newcastle has taken us for a ride and acted in a dishonest and underhand way. When it came to seek our protection against the bid from Elders IXL, it said that it had made "categorical and repeated undertakings" about the continuation of the brewery business in Blackburn. It repeated those pledges again in 1989—less than a year ago—after the Monopolies and Mergers Commission report on the future supply of beer and gave an undertaking to implement it. The company said that brewing would continue in Blackburn. Now, some months later, the brewery is to go.
As the hon. Member for Hyndburn made clear, the announcement was made in a most brutal way. In the letters that were sent out the work force were not even thanked for their efforts. Instead the company sought to blame them for alleged inefficiencies.
All hon. Members understand that undertakings can be given quite honourably and reasonably in the course of acquisitions and takeovers as to the future intentions of a company, but that there can be a genuine, and unanticipated, change in market conditions which makes it impossible to fulfill those undertakings. On the evidence, I do not believe that Scottish and Newcastle can possibly plead that that is the case.
Let me explain why. First, there is the clearest evidence —it has been present all the way through, as I have said —that Scottish and Newcastle could not make a return on the capital that it had invested in purchasing Matthew Brown unless it shut the brewery and transferred production to its other breweries in Manchester, Nottingham and Newcastle. Secondly, the reason offered by Scottish and Newcastle for closure is, in my judgment, a fabrication. Thirdly, there is clear evidence that since 1988 Scottish and Newcastle had followed a secret, but deliberate, strategy to engineer a rundown in the marketing, sales and production of Matthew Brown brewery and products so as to justify closure.
I have already dealt with the first point about the financial imperatives on Scottish and Newcastle. As to the second, the principal excuse used by Scottish and Newcastle, when it issued its closure notice on 9 November, was that the Monopolies and Mergers Commission report on the supply of beer had forced it to sell 300 of its 2,300 public houses, and that that had wholly changed market conditions. That excuse is bogus. Most of Scottish and Newcastle's trade is free; it sold the 300 least profitable public houses; and it has done deals with a large number of those 300 public houses under which it would continue to supply them under the free trade. What Scottish and Newcastle is now saying is wholly contrary to what Mr. Alick Rankin, chairman of the company, said on 2 July in his annual report—that the Monopolies and Mergers Commission report was "an opportunity" for Scottish and Newcastle, not a disaster. He said:
I anticipate that the Company will obtain significant trading benefits from this current preferred situation and from the further loosening of the tie in 1992.
My third allegation is that Scottish and Newcastle engineered a rundown, contrary to specific undertakings in the offer document to support and develop Matthew Brown's sales of lager and to develop sales of draught beer. How has it done that? It stopped advertising Slalom lager on television. If one is going to sell lager, it is crucial to advertise it on television. Matthew Brown were advertising, but Scottish and Newcastle stopped. Instead, it increased the advertising of McEwan's lager and
instructed its representatives to push Scottish and Newcastle products, rather than Matthew Brown products. It downgraded Matthew Brown pumps and bar advertising in some outlets, and took their products out of other outlets. It offered publicans better prices on McEwan's lager than on Matthew Brown products. Having done that, and therefore deliberately secured a slump in Matthew Brown demand to only 32 per cent. of capacity and only four or five brews a week—four years ago it was running at between 18 and 22 brews a week—it said that the brewery was working inefficiently, and that closure was justified. Of course, if one runs down a fixed asset and operates it at only 30 per cent. of capacity, it is bound to work inefficiently. That does not mean that it was not working efficiently before. Distribution, wines and spirits, cellars and estates have been moved to Chorley and brewing is to be moved to Manchester, Newcastle and Nottingham.
I put all those allegations to Scottish and Newcastle in a detailed letter on Tuesday. I sent it to each and every one of the directors. Scottish and Newcastle replied earlier today with a couple of pages of waffle giving the excuse that much of the information was commercial in confidence, which it is not. It attached press notices which I have already seen and do not answer the point. So I am not making allegations that I have not put to Scottish and Newcastle. The fact that it cannot answer them shows its understanding of its guilt in the matter.
The conclusion from this disreputable story seems to be inescapable. Scottish and Newcastle directors, including Mr. Alick Rankin, Mr. Gavin Reed and others, entered into undertakings which from the beginning they never intended to keep. They acted dishonestly. They gave undertakings to the MMC, shareholders and the work force. They offered those undertakings freely in free, contested takeovers and to the MMC. In my judgment, undertakings freely offered in such circumstances must be capable of enforcement. What enforcement can there be? One cannot put the clock back, of course, but where such undertakings are made to the MMC—"sacrosanct and for ever" were the words—and are broken in such circumstances, it should be possible for the company to have the matter referred back to the MMC. I ask the Minister to consider that. Alternatively, the matter could be referred to the Office of Fair Trading. There should be a power to require disinvestment of the assets to someone else who will keep the brewery going.
The takeover of Matthew Brown by Scottish and Newcastle was pursued in the name of extending consumer choice. It has resulted in cuts in consumer choice, cuts in jobs and the shutdown of a brewery which otherwise had a good future. It is a disgraceful story. The shutdown was wholly unnecessary. The people who have been adversely affected by the closure want justice.
I understand the worries that the hon. Member for Blackburn (Mr. Straw) has expressed about the brewing industry and those of my hon. Friends the Members for Warrington, South (Mr. Butler) and for Hyndburn (Mr. Hargreaves), who are also present for this important debate. Like the hon. Member for Blackburn, I should be sorry to see those jobs threatened at the Lion brewery.
Yes, indeed. I understand the impact that the closure could have on the families concerned. I should like to see a thriving brewing industry offering secure employment. So I shall add to the hon. Gentleman's account of the sequence of bids and events and comment on whether undertakings can mean something and what action it is possible to take on them.
Scottish and Newcastle Breweries' first bid for Matthew Brown was referred to the MMC in 1985. The MMC concluded that it would not operate against the public interest. This meant that the then Secretary of State could take no action to block the bid, or impose conditions on Scottish and Newcastle, as he cannot in such a case overturn the MMC's finding, if he wanted to. Even though Scottish and Newcastle told the MMC that the future of Matthew Brown's breweries at Blackburn and Masham was sacrosanct, the MMC did not conclude that closure, if it occurred, would be against the public interest. There was therefore no basis in that case for holding the company to its promise.
Tonight we are considering the closure of one of these two breweries. The third, ultimately successful bid was not referred to the MMC. I have little doubt that, in taking that decision, my right hon. and noble Friend Lord Young, who was then Secretary of State, would have been influenced by the MMC's earlier report and by the similarity between the two bids. On that occasion, there were no powers to attach conditions to a decision not to refer a bid to the MMC.
I listened carefully to the hon. Gentleman's recommendations about how the treatment of undertakings could be tightened up. I am sure that he will be pleased to know that matters have been tightened up considerably since those days. Under the Companies Act 1989, provision is made for undertakings to be given in place of a reference to the MMC. Certain types of promise made by a company as a condition for the merger being allowed to proceed are now enforceable. It is now an offence to give false or misleading information about a merger to the Secretary of State, the Director General of Fair Trading, or the MMC. Of course, in each case it would have to be demonstrated that the information was known to be misleading, or that it was false and given recklessly at the point where it was so given.
There is another way of looking at the matter. The conduct of takeover bids is regulated by the City code on takeovers and mergers, which is administered by the takeover panel. The bidding company must state its intentions for the future of the business and its employees. The code requires that all statements made in offer documents meet the same high standards of accuracy as prospectuses.
It is the job of the takeover panel to ensure that high standards are maintained. If it has reason to believe that an offeror company has made statements in bad faith, it can investigate and take whatever steps it feels are necessary. I will ensure that the panel receives a copy of the transcript of the hon. Gentleman's remarks.
I am grateful to the Minister for saying that he will draw my remarks to the attention of the takeover panel. What might follow from that, if the panel believes that this raises a serious matter?
There are several issues which the takeover panel can pursue with the adviser or the company making the bid, if it feels that there were improprieties. It could impose several penalties on either party if a wrong had been committed.
The common law, notably the law of misrepresentation, also applies to statements made during takeover bids. If a shareholder suffers financial loss as a result of a misrepresentation in the document, he may be able to sue for compensation in the courts. Employees are protected by the general provisions of employment law, but there are no job guarantees.
Section 47 of the Financial Services Act 1986 makes it an offence to make misleading or false statements, in this case to induce a person to sell shares. Similar provisions existed in the predecessor legislation, the Prevention of Fraud (Investments) Act 1958, which was in force at the time of the successful Scottish and Newcastle bid. Under that legislation evidence would have to be presented showing that the promises made at the time of the bid were made recklessly or in bad faith. If the hon. Gentleman has any more such evidence, I will consider it carefully, alongside the points that he has put to us tonight which I should like to consider further with advice.
Scottish and Newcastle has suggested that any job losses at the Lion brewery will be the result of the Government's measures to promote competition in the supply of beer. I believe that the hon. Gentleman does not agree with that, and I certainly do not accept it. I would expect Scottish and Newcastle to benefit in trading terms from the Government's measures. As a company with traditional strengths in the free trade, it has everything to gain from a liberalisation and expansion of the market. We have seen something of this since 1 May, when tenants of the five national brewers have been free to take a guest beer.
In his statement on 2 July this year, on publication of Scottish and Newcastle's annual report, the chairman said:
It is possible for the Company to take advantage of these provisions of the Beer Orders which enable it to sell guest beers and other drinks into the tied estates of the major brewers. I anticipate that the Company will obtain significant trading benefit from this current preferred situation and from the further loosening of the tie in 1992.
That optimism appears to be confirmed by the latest results. The company's overall beer volumes were up 2 per cent. Strong cask sales were reported, particularly for the Theakston's range. Theakston sales were then reported to
be up 18 per cent. for the year, and 50 per cent. higher than at the time of the acquisition of Matthew Brown. At the annual general meeting on 30 August, the chairman also said:
our beer sales are ahead of last year, giving cause for continued confidence.
This is the picture of a company successfully taking advantage of the new more competitive trading environment to which the Government measures are contributing—not one that has been knocked sideways by continued intervention to promote competition in the market.
What happened to the stock exchange surveillance department's inquiry into insider dealing when Scottish and Newcastle took over Matthew Brown? Is it not true that the department submitted a report identifying those people who had engaged in insider dealing to the Department of Trade and Industry, yet no action was taken? Why were no prosecutions brought when individuals were identified?
In general, the Department brings prosecutions in all those cases where it has collected sufficient evidence to make it worth while, or when other authorities have referred to it suitable cases that could be brought. I cannot answer the hon. Gentleman precisely tonight about the details of that particular case. I shall write to him when I have had a chance to review the file and to see the evidence behind his question. The hon. Gentleman will then be more fully in the picture.
I have identified three possible avenues down which the question of undertakings could be pursued. I have explained that the Government were aware that the regime governing undertakings was not strong under the previous legislation. That has been remedied by the measures we took in the Companies Act 1989, which apply to takeovers and mergers now under way or in prospect. That Act cannot, of course, apply to the takeover of Matthew Brown, which took place under the previous regime.
I promise the hon. Member for Blackburn that I shall study the record of the debate further to see if there is anything that the Department can properly do. I hope, however, that the hon. Gentleman will also pursue the case in the ways that I have identified if he feels that there is sufficient evidence to do so.