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Babcock And Wilcox Ltd And Herbert Morris Ltd

Volume 927: debated on Monday 7 March 1977

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asked the Secretary of State for Prices and Consumer Protection whether he has anything to add to his statement of 23rd February about the proposed acquisition by Babcock and Wilcox of Herbert Morris.

On 23rd February, in answer to a Question tabled by my hon. Friend the Member for Kingswood (Mr. Walker) I announced my right hon. Friend's decision that there were no grounds for further intervention in the existing and contemplated merger situation between Babcock & Wilcox Limited

asked the Secretary of State for Prices and Consumer Protection whether he will publish in the Official Report a table showing for each month since January (a) the increase on the previous month of the wholesale price of manufacturers less foodstuffs, (b) the increase on the previous month of import prices of manufactures for the previous six months, (c) the increase on the previous month of the retail price of imported and home-produced goods which figure in the RPI and (d) the increase on the previous month of the import price of fuel and basic materials for the previous 12 months.

The nearest information is as follows:(Babcock) and Herbert Morris Limited (Morris), in the light of the divided report received from the Monopolies and Mergers Commission. In my statement, I said:

"Where, as in this case, the reference has been considered by a group of members of the Commission, my right hon. Friend can only take action under the Act in respect of the merger or proposed merger if at least two-thirds of the members of that group has found the merger to be against the public interest. Since there is not a two-thirds majority, no action under the Act is possible in this case. Moreover, the argument for and against the merger are finely balanced, as is evidenced by the minority report signed by the Chairman of the Commission. There are, therefore, no grounds for further intervention by my right hon. Friend, and the outcome must now be determined by those directly concerned."—[Vol. 926, c. 572–3.]

It now appears that, because of an error in the renumbering of a cross-reference when the Bill was passing through Parliament in 1973, there is doubt whether this statement correctly expresses the legal position in relation to existing mergers. It is possible, though only the courts can say with certainly, that my right hon. Friend may have power to act upon that conclusion of the majority of the group that prepared the report, which recommended that the existing merger situation—created by Babcock's shareholding of 39·24 per cent.—should not be permitted, and that this shareholding should be reduced to not more than 10 per cent., even though this was the conclusion of only three out of the five members of the group—i.e., less than a two-thirds majority.

Because of the doubts that have been expressed about the legal position it is necessary to clarify and confirm my right hon. Friend's decision in this matter. The power of my right hon. Friend to act in such a case is entirely discretionary. He is under no obligation to intervene to stop a merger, even where a Commission report concluding that this is the right course is supported by two-thirds or more of the group that conducted the inquiry.

The circumstances of the Babcock and Morris report are unusual. The five members of the Commission who completed it were divided as nearly equally as possible, and the arguments put forward in the majority and the minority reports were, as my earlier statement indicated, finely balanced. The fact that the minority report had the authority of the Chairman of the Commission behind it cannot be ignored.

In order to end further uncertainty which can only be damaging to all the parties concerned, my right hon. Friend considers it right to reaffirm that he has no intention of intervening to prohibit the contemplated merger of the two companies or to require Babcock to reduce its existing shareholdings in Morris, irrespective of whether or not he has in law the power to do so.

The Government are considering an amendment to the Fair Trading Act to remove the legal uncertainty that has been revealed by this case.