Léim ar aghaidh chuig an bpríomhábhar

Seanad Éireann díospóireacht -
Wednesday, 14 Jun 1978

Vol. 89 No. 8

Mergers, Take-overs and Monopolies (Control) Bill, 1978: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

A number of efforts have been made in the last decade to establish a system of controls of mergers and take-overs by legislation but for various reasons these did not come to fruition. The need for the introduction of such controls was first recognised at a time of very heavy merger activity and while this activity slackened off in the period of depression, there are indications that there will be a strengthening of this activity with the revival of the economy. I feel it is desirable therefore to proceed with this legislation without further delay.

The proposal to establish a scheme of control for mergers and take-overs should not be seen as an indication of an anti-merger bias by this Government. The contrary is, in fact, the case and this is evidenced by the enactment of the Industrial Development Act, 1977, which provides a positive form of assistance to enable Irish firms to engage in planned and orderly restructuring. It is recognised that the trend to date in merger activity has been on balance beneficial to the economy. Economies of scale needed to compete effectively both in the domestic and international markets have been and can be, achieved; under-utilised resources can be switched to sectors where optional use can be made of them; efficiency can be improved; sluggish management can be revitalised; rationalisation of production and marketing can be achieved.

It is clear therefore that merger activity can be, and indeed has been, beneficial to our economy. I trust, therefore, that these proposals will not be viewed, as some commentators have suggested, as an inhibiting factor in the further strengthening of Irish industry but rather will they be seen as a necessary check against the type of merger activity which is motivated by considerations other than those which achieve the effects I have referred to. As the House is aware the object of some mergers can merely be the elimination of competition with possible adverse effects on productive efficiency and allocation of resources and, ultimately, restrictions in consumer choice and higher prices to the consumer. Other undesirable objects could be the milking of profits from a business which has built up large reserves or even the run-down of a perfectly viable industry by asset-stripping. Mergers so motivated can do great harm not only to persons immediately affected but to our economy as a whole and for this reason Government controls as proposed are essential.

Mergers, therefore, may be good or bad. In our circumstances the great majority are likely to be beneficial, but the need remains to distinguish these from the minority of cases which would be positively harmful. Because of the strong probability that a proposed merger will be beneficial, the mechanism of control will be based on a presumption in favour of proposals. In recognition of this, the Minister has indicated his firm belief that only the very exceptional proposal will be referred by him for detailed investigations to the Examiner of Restrictive Practices. For the greater part, it is expected that proposals notified will be cleared at most within a two or three week period and, in the majority of cases, the Minister expects that the green light will be given within a matter of days. To facilitate early clearance, the Minister has stated that he would welcome informal consultation with promoters of mergers and takeovers before any announcements would be made and it would be his hope that informal reaction could be given to promoters at that stage. It had been suggested that the reaction given by the Minister at that stage should be binding upon him when the proposed merger is formally notified. While the Minister accepts that there is a certain merit attaching to this suggestion, he feels that the establishment of such a restriction would defeat the object of informal prior consultation for the reason that the Minister might not be willing to indicate his reaction to a proposal if he is to be bound by that reaction when a more developed proposal, which could differ in some important way from that which was the subject of the informal consultation, is notified to him.

Finally as regards the possibility of delays, I should like to draw the House's attention to an amendment effected to the Bill in the Dáil which provides for a maximum period of three months, with a possible extension of a small period when further information is sought, within which the Minister may consider a proposal and issue a decision thereon. This period compares very favourably with the period of nine months contained in the 1974 Bill and should go a long way towards easing concerns expressed about the possibility of delays. I wish to emphasise, however, that this period will be relevant only where the Minister contemplates the possibility of prohibiting a proposal and, as I have already said, it is expected that such cases will be very few and far between.

Another area of concern has been the level of the thresholds of application of the Bill. It has been suggested that the levels proposed are much too low and compare very unfavourably with levels in similar pieces of legislation in other countries. It has also been suggested that there should be a concept of market dominance associated with the thresholds. As regards the thresholds I should like to point out that those proposed represent a substantial increase over those contained in the 1974 Bill, an increase which outstrips the 1974 levels adjusted for inflation. Additionally, I wish to emphasise that the thresholds applies to both the companies involved, unlike the 1974 Bill where, in the case of a proposed merger, the Bill would have applied where only one of the companies involved had turnover or assets above the threshold. The thresholds themselves are, of course, arbitrary, as any such limits must be. They may also be considered low, but in a small market such as ours assets and turnover figures which might be regarded as modest in other countries might put the majority of mergers and takeovers here outside the scope of application of the Bill. It is vital to ensure that all significant arrangements are caught and the limits must, therefore, be low. The Bill, of course, does empower the Minister to raise these limits and it is the intention that this power will be exercised as frequently as necessary to ensure that the levels are not outstripped by inflation.

On the question of involving a concept of market share in the criteria for application of the Bill, I would like to point out that in a scheme of control concerned merely with the aspects of preserving competition such a concept would be desirable. However, while this Bill is concerned with this area, it is only one of the matters to which the Minister will have regard when considering a proposal. As will be noted in the schedule to the Bill, the Minister will also have regard to such questions as employment, regional matters, industrial reorganisation and the consumers' interest, each of which is equally important.

The main provisions of the Bill are summarised in the explanatory memorandum which has been circulated and I do not therefore intend to go into any great detail at this stage except to say something about the EEC aspects. Senators are no doubt aware of the EEC Commission's vigorous line in defence of competition, the various methods already available to the Commission to facilitate effective implementation of this policy and the proposed regulation on the control of concentrations which will provide powers in relation to proposed mergers not unlike those which this Bill proposes. Discussion on this proposed regulation, which was submitted to the EEC Council in 1973, has proved to be very protracted and, in fact, decisions have not yet been reached on matters basic to the proposal, such as the principle of pre-merger control, the field of application and the decision-making procedure. However, in view of present trends in discussion relating to the scope, it appears that the regulation, when finally adopted, will affect only very large mergers, so large in fact that it is most unlikely that any proposed all-Irish merger will be affected. It is, therefore, essential that we should, on the domestic front, supplement the measures to which we shall be party on the international front.

My comments so far have been confined to the merger/take-over aspects of the Bill and, as Senators are aware, the Bill applies also to monopolies. The Restrictive Practices Act, 1972 already provides for controls on undesirable practices of monopolistic concerns. Under that Act the Minister for Industry, Commerce and Energy is empowered to regulate and prohibit practices that may be engaged in, but it is the general experience that statutory controls may be rendered at least partially ineffective where a particular market is dominated by one unitary concern or undertaking. It is, therefore, as necessary to provide powers to restore competition by breaking up monopolies as it is to preserve competition by controlling mergers and take-overs. I am not suggesting, however, that all monopolies are undesirable and should be broken up. On the contrary, in an economy the size of ours it is inevitable that there should be monopolies within the meaning of the Bill, that is to say which provide more than one-half of the goods or services of a particular kind in this country, but it does not follow that these monopolies are abusing their dominant positions. The fact is, however, that given the existence of monopolies the possibility exists for certain undesirable market behaviour. It would be unwise not to recognise this and to provide for remedial action where necessary.

The proposal in this Bill in relation to monopolies is to amend the Restrictive Practices Act, 1972, to provide, by adding to the powers conferred by it, the power to break up a monopoly. As with the other decision-making powers in this Bill, this power is conferred on the Minister but it is subject to control by the Houses of the Oireachtas in that any Order made by the Minister under this Bill relating to a monopoly will be subject to confirmation by Act of the Oireachtas before it has the force of law.

I should like to draw the attention of the House to the definition of a monopoly which was amended by way of official amendment. It had been suggested that the original definition would have applied to a large percentage of the types of industries which the IDA are actively encouraging to establish in this country and the realisation of this by potential investors might have caused them to hesitate. The Minister accepted that there could be a certain validity in the argument that industrial promotion efforts could be adversely affected accordingly, and he also acknowledged that any adverse effects of export-oriented monopolies would hardly be felt here. In these circumstances, the Bill now provides for the exclusion from the definition of a monopoly of enterprise at least 90 per cent of whose output is exported or at least 90 per cent of whose output is supplied for incorporation in products which are exported.

Finally, I should like to emphasise that the fact that an enterprise comes within the definition of a monopoly does not mean that its operations will be automatically investigated. Investigations will only arise where there is good cause for believing that the monopoly enterprise in engaged in practices which are unfair or operate against the common good.

The measures contained in this Bill can be seen as an effort to ensure that Irish business will operate in a healthy competitive environment to the betterment of the economy and not as measures designed to frustrate further business development. I accordingly recommend the Bill for the approval of the House.

I must tell the House that I am extremely unhappy with this Bill, I would invite Senators very particularly to have regard to it in an entirely non-party way. They are free to do so because this type of legislation has been hanging around the Department for longer than the Minister of State or the Minister for Industry, Commerce and Energy. It is one of the comforts of the two changes of Government we had that they delayed the introduction of this Bill for six years, or at least delayed its receipt by this House.

I see very little good that can be done by it, and such good as might be done by it is not spelled out. The intended mischief, whatever it may be, and we may guess at it, which it presumably is designed to curb is not made clear to us. The damage it may do—and I do not wish to be in any way alarmist—may be quite considerable. For the comfort of Senators opposite I would tell the House that I expressed views on a worse Bill to the Minister then in charge of it when he introduced it. My position on this is at least consistent. If I am consistently wrong, maybe somebody will tell me why and how. I hope I am being consistently right.

I would ask the Minister to tell the House what analysis of the structure of Irish industry has been carried out to justify the proposed very considerable interferences with the free decisions of businessmen with regard to one of the modes of growth open to them. If such analysis was carried out, why has it not been published? Why is it not available to us? Was it carried out before the 1972 Bill? Was it carried out before the 1974 Bill? Has it been carried out before the 1978 Bill? I cannot be put off by the cosy words of the Minister showing her Department's appreciation of the advantages of mergers when I see the possible effects of the prevention of desirable mergers which may result from this Bill. It is no comfort to me in looking at this Bill to be told that its predecessors were worse if it is still bad.

As I see our country, viewing it economically, an economy of three million people in a free market of 260 million. 1 per cent approximately—and that is good enough for the purposes of anything one has to say of the market—there are various rules which we have got to comply with because we signed the Treaty. But let nobody fool themselves. If we were free within these rules to do things to encourage our own and to discourage others we should do them. If an international trend of opinion is developing against mergers, and if an international trend is developing within the EEC in favour of a control of mergers, it does not logically follow that it is in our interest to go further than the EEC proposes to go in the interests of the freedom of the whole market. It may well be in our interest to have some of our economic units strengthened to compete in that large market, to place no impediments before businessmen who have the charge of the capital in their hands in achieving the growth in size which may be requisite for survival within that market.

It seems to me that there are two ways by which an economic unit grows. One is by generation internally of its own growth by retained profits, by getting additional subscriptions from shareholders, by financing of one kind or another. There is this other method, a method of merger. I had a look at the 20 largest quoted companies and, from my own knowledge, I could work out that 14 of the 20 reached their present size by mergers. Some of the six I did not know anything about may have done the same.

There has been mention by the Minister of undesirable mergers. Of course undesirable things happen in a free society. Of course mistakes are made. Of course there is asset stripping, but there has been in fact very little asset stripping in Irish circumstances. But judgments are there to be made on those who make these mistakes and, in an endeavour to prevent one mistake, you may prevent the making of many good decisions, and this is my very particular concern. It has been said—and said many times, and I suppose it is worth saying it again—that the size of even the largest company in Ireland is extremely modest on viewing it internationally. As I looked at the figures given in Fortune I found that the company with the largest turnover published and quoted on the Dublin Stock Exchange missed the first 500 of the United States companies, and was in the next 100 or so after that, I think the 600s.

Here we are with our largest company not within reach of the top region of the American companies and we are creating obstacles to growth for that company and any other companies there may be. Our market is wide open to competition from companies—not from America, we are not talking about the American market—but of Americanlike size in the UK, Germany, France, and so on. People who talk about monopoly in the new situation are misusing the word. I am not going into the finesse of it. Of course a certain degree of monopoly is enjoyable in a street, in a village, in a town, or in a region, but the type of monopoly one is talking about which involves the serious abuse of a dominant position which damages an economy's growth—how can such a monopoly grow here in the context of import penetration by these foreign competitors?

We have got protection of a sort against dumping, but we are now talking about competition which will not be dumping, which will be production at a fair price and sale at a fair price in this market against our producers. Are we to put impediments before the growth of these companies? I think we are most unwise. We are also unwise in the test we have chosen in this Bill and the previous Bill, the test of turnover. Incidentally, it is not the alternative test in the UK. The assets figure is £2½ million on both sides of the operation. That is an improvement, and I accept it as being an improvement. It is still a miserable figure. I may have quoted the wrong figure—£1¼ million gross assets and a turnover of £2½ million. In relation to turnover two companies each with the same capital, with the same number of people employed can have an entirely different turnover because of the point at which they are operating, whether they are manufacturing raw materials or taking in the goods at an advanced stage of production or perhaps selling them fully manufactured.

In Britain the alternative test relates to the proportion of the market. In the EEC where they have the turnover figure, what is the turnover figure they are proposing? It is 500 million units of account. That is approximately £275 million, and we are to control companies of one hundredth the size. Even that would not bring them in the EEC into the position of being controlled because, in addition to that turnover, they have to have a market share of more than 20 per cent unless, in the alternative, whatever the turnover was, the market share exceeded 30 per cent. That is what is proposed. Under the proposal in the EEC notification is required, notification which does not prevent action, notification where the turnover is in excess of 50 million units of account, or ten times approximately what is here required, before the proposed merger can have effect.

This point which seems to have been missed in Dáil Éireann—I suppose I am allowed to make a passing reference to the other House of the Oireachtas—and this is an important distinction between the law as it is in the United Kingdom, if I understand that law correctly—and, and as it is proposed to be here—is that in Britian there is no prohibition on the merger taking effect. They go on with the merger. They may be knocked down on reference to the Monopolies Commission, but the merger goes on, can go on, has legal effect and, as I understand the position, there is no obligation on the parties to refer the matter to the Department. The Department of Trade reads The Financial Press and, as a matter of practice of course are generally consulted by the parties concerned.

In practice there will be an additional difficulty arising from the smallness of our society. There is the trickiness, if you like, of this little city. We are turning on another tap of information. In relation to proposed mergers, particularly the public sphere, secrecy is everything. The walls in Dublin do not merely have ears. They jabber. I am aware that, in relation to particular proposals for mergers and take-overs, it has been found prudent to have the documents prepared outside of Dublin, because once the word reaches anybody, or anybody beyond the sacrosanct few deeply involved, the market gets the message before it ought to, to the damage of the innocent.

There is another element in this and I am astonished at the imprudence of a political party as wise in the matter of politics as the Minister's Party.

In the matter of politics I am allowed my reservation. I do not want to subtract from anything I have said because it is important that I make this point. The Minister will be able to say "No" to a merger. He has a big post at the moment. What will his post be like once he is in this position? What take-overs and mergers will not rub against some sensitivities, managers or shareholders, employees or, most difficult of all, local loyalty and interest? If there is involved in a proposal rationalisation which may mean that some unit will be closed down somewhere in the country, will not political pull start? Even if the Minister is totally free from having regard to such considerations, will he not be blamed for not having stopped it? Is he not foolish to get into this position from a public point of view and from the economy's point of view? In that position a weak Minister unfortunately may respond to it.

This is particularly true if you look at the extraordinary criteria in the Schedule. Under section 8 of the Bill the registrar has to state his opinion as to whether or not the proposed merger or take-over would operate against the common good in respect of any of the scheduled criteria. There are nine of them. There should be only one criterion for stopping a merger. Does it or does it not endanger free competition? Maybe the author of the Bill has some mischief in mind to cure. If so, he should say it. If it is newspapers, let us have a chunk of a Bill dealing with newspapers. The British have not been a bit shy about it. A new part of their Fair Trading Act, 1973, specifically provides for the merger of newspapers and newspaper assets.

Maybe we are concerned about the buying power of distributive companies affecting the purchase of Irish manufactured goods. Maybe we cannot say that specifically because of the EEC rules against discrimination between Irish and foreign goods, but there is nothing in the EEC rules which can prevent us from controlling mergers of units along the distributive line. Anyhow the Government will not get away with that, if it is really to be used as a method of preferring Irish industry over EEC industries. I would not have thought, at any rate, that they would get away with it.

What is the justification for controlling the expansion of Irish companies abroad? Is it a simplistic idea that they should be investing their money at home even though every private individual is free to invest it abroad? Are progressive companies, who are caught by the law to dedicate their profits for future development, not allowed to take investment opportunities where they see these opportunities presenting themselves, particularly when we have a situation where one of our top companies is now generating more profits from activity abroad than from activity here? Is that bad for the Irish economy? It strengthens that company. It makes it possible for it to invest more and create employment of a maintainable and sustainable character.

We have the curious position now where companies that have up to this grown by their own generation of profit or by merger take-over, are free at this point to continue to grow beyond their present size. The only risk they run is running into the monopoly restriction. Smaller companies can only grow by one way. There is no justice or wisdom in that. One of the things which has been frequently hoped for from foreign investment is what is called linkages with development. Export oriented companies are free from the monopoly restriction but they are not free from the merger restriction. Here is a linkage which they cannot now make without ministerial approval. With the greatest respect to public men and civil servants and lawyers, they do not know how businessmen reach their judgments. The businessman very often does not know how to ariculate his position. Perhaps he does not want to disclose a long term plan to anybody.

It is a great mistake for us to cast this shadow over business development. It is felt as such despite the protestations of the Minister. Perhaps the protestations of the Minister indicates an awareness that it is felt as such but the protestations will not diminish that shadow on the development of Irish industry.

In this House private enterprise or free enterprise has been talked about. Let it be free to develop and let us control the abuses. There are all sorts of controls already in existence, unlawful dismissals, redundancy provisions, provisions referring matters to courts and protection of minority interests, but let these mergers go on or at least let us have thresholds that make sense. The fact that the patient—if I may use the simile for the Bill—is slightly better than he was a few years ago does not make him less ill than he is at the moment. I am not impressed by the movement of thresholds, because this is like somebody engaging in a market operation saying he will give £10 for something that is worth £100. To bid up from whatever it was to whatever it now is is to be a mile away from the reality. If one looks at the list of Irish companies which I have here, the turnover of the first 61 is in excess of the threshold so that if one bids for any one of these one has to go to the Department of Industry, Commerce and Energy, convince the highly agreeable gentleman there that this is a good thing and get their permission to do it. If one does not, acceptance of one's bid is of no effect. One cannot go ahead and say one will work it out afterwards. It has no effect. What happens to the price of the share in the meantime? What happens in the market place?

The amendment which could transform this Bill and would take a lot of the damage out of it would be to delete the provision in section 3, "that a merger shall not have effect until". It would indicate to the world at large that we were looking more appropriately to the size we wish this economy to grow to if we had thresholds that were more realistic than we have in this Bill.

Some people who are not aware of what is going on may not realise how the British Stock Exchange manage when all these mergers and acquisitions take place when they have had legislation on this subject since 1948. I should like to quote from the Guide to the Board of Trade Practice:

In practice, under the legislation, only a small proportion of mergers considered by the Board of Trade have been referred to the Commission. This is because in only a few cases was there sufficient doubt about the implications of the mergers for the public interest. In the great majority of the cases, as was always envisaged, the board has decided that, even though the mergers could not be classified as positively desirable in the national interest and should be such as to be actively encouraged, there were not sufficient grounds to refer them to the Commission for full scale examination with all that that would entail.

That is the guide issued by the Board of Trade. We should have legislation which goes beyond the language of the Minister. The Minister introducing the Bill should not have to justify any of its provisions. The legislation should set out the position clearly to enable that type of communication to be issued by the Department.

I have no doubt whatever about the good intentions of the Department, but that has very little to do with it. It will be many years before people will be satisfied that they need not worry about legislation which, on the face of it, they ought to be worrying about and which, in effect, would apply to their proposals. I have nothing more to say at this stage.

I am somewhat disappointed with the attitude which has been taken by Senator FitzGerald in regard to this Bill. I can assure the Senator that it has not been brought in as he says by me or by this Government as intended mischief.

I may have conveyed myself badly. I meant to say to cure a mischief which had not been specified. I did not intend to say that it was intended to create a mischief. If I so expressed myself I regret it.

I accept the Senator's explanation. The Government accept that the vast majority of mergers are desirable and that the method of a company's growth by a merger is desirable, and of course the Government would encourage such desirable mergers. The scheme of the Bill recognises this, and it is for this reason that the Minister is being enabled to clear desirable mergers fairly rapidly. It is not agreed that companies who wish to expand by merger activity will be faced with what the Senator claims may be insurmountable difficulties and impediments. I have indicated that there will be a presumption in favour of mergers, but promoters of mergers may approach the Minister on an informal basis. It would be the intention that an indication of what his feelings towards the merger might be could be indicated to them at that stage but no firm indication could be given and nothing the Minister might say would be binding at such informal consultations. I am satisfied that the majority of mergers will be cleared in a very expeditious manner so as to cause the least upset to Irish business.

The Senator referred to the position in the United Kingdom where mergers may go ahead but may be broken up later. That is a most unsatisfactory situation because it can lead to uncertainty.

But it has not done so.

Whereas under this Bill once approval is given the merger proceeds and cannot be broken up. The Senator asked what was the reason for preventing Irish firms from expanding abroad. I assume that the Senator is referring to the fact that Irish companies taking over a foreign company will have to notify and get clearance. Since EEC firms taking over an Irish firm are caught by the Bill then, to avoid complaints of discrimination on the grounds of nationality, Irish firms should also be caught. The Senator mentioned the prior notification in the United Kingdom. I understand that there is now a very strong feeling in the United Kingdom that proposals should be notified and indeed, as the system operates there, it is the general experience that mergers are notified before they are effective.

The Senator mentioned the size of Irish firms as against European companies. This is not a fair comparison because, in a small market and a small economy such as ours, thresholds which might be regarded as modest in the European context might, in fact, put the majority of Irish mergers outside the control of the Bill and would lessen its effect as a result. In regard to the criteria, the Senator felt that only one criterion was sufficient, and that had to do with the level of competition. There are concerns which arise, for example, in the case of a merger which would involve the transfer of resources from an undeveloped area which would involve the loss of a substantial number of jobs, which could not be justified by any long term economies that might be gained as a result of the merger.

It is not the intention of the Government to appear to have a bias against mergers. The Government are anxious to promote a healthy economy. They are anxious that all mergers in this country would be beneficial to our economy. There must be legislation which curbs those that are undesirable, and the criteria laid down in the Bill will prevent such mergers taking place.

Question put and agreed to.

An Leas-Chathaoirleach

Next Stage?

It is far too important a Bill to rush through.

Would the Senator be prepared to take it tomorrow?

Committee Stage ordered for Wednesday, 21 June 1978.