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10.12 am

Mr. John Maxton (Glasgow, Cathcart): I have to tell the hon. Member for Bexhill and Battle (Mr. Wardle) that I wish to make my remarks entirely about the Guinness affair in which, far from being over-zealous, DTI inspectors appear to have done very little. Certainly, little has been done after the initial burst of the interim report, to which he referred. By the way, the report is not readily available to Members of Parliament because it has never been published.

In case anyone believes that my actions are politically motivated, I should point out that my interest in the affair come from a constituent and friend--although not necessarily a voter for me--Robert Jack. A distinguished Glasgow lawyer until his retirement, he was a professor of mercantile law at Glasgow university and was used by the DTI in the early 1980s on the advisory panel on company law. Between 1987 and 1989, he chaired the review committee on banking services law. He knows a great deal about the world of company law and is a director of the Bank of Scotland.

Mr. Jack's persistence in asking me to raise this matter meant that I asked the previous Government a series of questions and wrote a series of letters to Ministers about why the DTI inspectors never published a report on the Guinness affair. It may be that the hon. Member for Bexhill and Battle thinks that Ernest Saunders and his friends and cronies were all very clean in terms of that affair, but most Scottish Members of Parliament at the time felt that the Guinness bid to take over United Distillers--which was not initially considered hostile by United Distillers; it was the Argyll bid that was considered hostile--bore the hallmarks of Thatcherism and the way in which the economy and industry were being run in Scotland and the rest of the United Kingdom. There was ruthlessness, and promises were made which were not kept. The bid was organised in such a way that shareholders were undermined and it was not to the benefit of the work force.

In making the bid, Ernest Saunders made certain promises to the shareholders of United Distillers. He said that the existing chairman of United Distillers would remain. He did not. He promised in shareholder documents that Sir Thomas Risk would become chairman. He did not, and was elbowed aside by Saunders himself. Saunders said that the United Distillers board would remain the same. It did not, and six members had to resign. He said that Guinness would change its name and move its headquarters to Edinburgh. None of that happened.

There were criminal cases and, eventually, Ernest Saunders--having found a cure for Alzheimer's disease that no one else in the world has managed to find--went to the European Court and received his judgment last December. But the real point that I would like my hon. Friend the Under-Secretary of State for Trade and Industry to answer--unlike previous Ministers--is why on earth, more than 10 years later, the inspectors have never published a report.

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Lord Spens was the last to raise the matter, asking the previous Government


The then Minister of State, Lord Fraser of Carmylie, replied:


    "The inspectors appointed to investigate and report on the affairs of Guinness plc have not yet completed their enquiries which were suspended during the Guinness criminal trials. Following the conclusion of the last of those trials the inspectors are working towards completion of their final report."--[Official Report, House of Lords, 28 January 1997; Vol. 577, c. 88-89.]

The last criminal trial in this country on the matter has been completed for nearly six years. Why on earth have the inspectors still not published a report? In addition, the report should have been published following the European Court decision last December. More importantly, why were the inquiries suspended during the criminal trials? I can understand that it might not have been possible to publish a report while trials were taking place, but to suspend the inquiries is beyond belief.

Will my hon. Friend the Minister tell us whether he has received a report on the matter? If so, will he publish it? The previous Government said that they had not received a report, but gave no promises that when they did, they would publish it. I hope that my hon. Friend the Minister will tell me whether he has received the report and will make it clear that he intends to publish it.

I want to make a little point about the way in which Mr. Ernest Saunders operated at United Distillers. That company is the proud owner of the famous Landseer painting, "Monarch of the Glen", which stands in the stairwell of its headquarters in Edinburgh. When the incoming chairman, now Lord Macfarlane, took over at Guinness and United Distillers, he had some job persuading Sotheby's that the "Monarch of the Glen" was not for sale. That is how Mr. Ernest Saunders operated. I think that we are entitled to know exactly what happened in the bid.

10.19 am

Mr. Quentin Davies (Grantham and Stamford): The whole House must be grateful to my hon. Friend the Member for Bexhill and Battle (Mr. Wardle). It will have been a difficult decision on his part to undertake the considerable work that he has obviously done in preparation for his speech today. I say that without making any presumption about the facts of the three matters that he has raised. But one of the two essential roles of the House--the first being our role as a legislature--is to act on behalf of the public as a watchdog over the whole apparatus of our administrative, including quasi-judicial, procedures to ensure that their integrity is safeguarded and that when questions need to be asked they are duly asked, and answers insisted upon, so that the public can have confidence in the openness and integrity of the procedures by which we are governed.

Everyone who knows my hon. Friend will agree that he has acted in the highest traditions of the House in deciding to draw public attention to the three matters that he has laid before us. The first is whether there was improper pressure on him when he was taking a decision as a Minister in a nationality case. I have absolutely no knowledge of any matters relating to that issue, and no comments to make on it.

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The second matter is whether the Department of Trade and Industry inspectors' inquiry into the House of Fraser was properly conducted. Again, I must make it absolutely plain that I have no personal knowledge of that matter, but there is one comment that I would like to make. Merely as a matter of personal interest, I read the report of the inquiry, and it made quite exciting bedside reading--rather more exciting than one is accustomed to receiving from the Department of Trade and Industry, or indeed any other Department of State.

I was struck at the time, as a former merchant banker and corporate financier, by the disproportionate attention paid to the issue of the Al Fayeds' personal wealth. As my hon. Friend pointed out, the issue of the personal wealth of a bidder in a cash bid is relevant only in so far as there may be doubts as to whether he has the means to purchase the shares for which he has tendered. There was never any question about the Al Fayeds duly paying on time and at the price offered.

The other great issue on which the inspectors spent, as I thought, a disproportionate time, was the Al Fayeds' family background. I have not had occasion to look at the document since I read it many years ago, but that still sticks in my mind, as it seemed so surprising. The issue concerned whether the Al Fayeds were the sons of some poor teacher in Alexandria or came from a wealthy Egyptian family.

Again, it seems astonishing that anyone should be concerned with the family background of a bidder in a public bid, except in so far as it related to the ability to pay for any shares for which he was tendering. We have all agreed that there was no link there. The extraordinary implication was that there was some shame attached to being the son of a poor teacher.

I have no knowledge of the Al Fayeds; I have had no business dealings with them, have never met them, and know absolutely nothing about them except what has been published in the media over the years--and we all know that some of that has been extremely lurid.

The other fact that struck me, as a corporate financier, was that the representations in the offer document--the prospectus issued on behalf of the Al Fayeds in connection with the bid--were regarded as a matter that was germane to their reliability. One can have some understanding of why that was the case, but it must be emphasised--as was not done in the report--that responsibility for the accuracy of statements made in an offer document lies with the person who signs it, and that is the bidder's merchant bank adviser.

I have signed prospectuses and listing particulars myself and I am well aware of the substantial responsibility that one has in such circumstances for the accuracy of every statement made, which is why I would always conduct verification meetings, sometimes over several days, with all the various advisers and parties concerned. If someone made a statement in the draft that he had, say, the highest market share for widgets in California, I would ask how he knew that and how the statement could be verified, and I would not accept that it should be included in the offer document unless I was persuaded that it had been properly justified.

Therefore, if there is criticism about statements that were untrue--whether about the essential issues in the financial decision that would have to be made by

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shareholders or even about peripheral issues, such as the family background of the parties involved--it should be directed at the merchant bank concerned and in particular at the director who signed the relevant documents. As I recall the inspectors' report, responsibility was not laid where it should have been.

The third matter is the Guinness bid for the Distillers company. I must say at once that I do have personal knowledge of the matter and of many, indeed all, of the principal players involved. At the relevant time, I was a director of Morgan Grenfell, the merchant banking adviser to the bidder, Guinness plc. Morgan Grenfell is now a subsidiary of the Deutsche bank, but was then an independent British bank.

I had absolutely no personal involvement in the transaction, which was being handled by a colleague, but I remember that at our morning meetings throughout the spring of 1987 statements were made about how many Distillers shares we had purchased and what the Guinness share price was. Unlike the House of Fraser bid, this was an exchange offer rather than a cash bid, so the price of the bidder's shares was of the essence in determining whether it would succeed.

The stock exchange was extremely buoyant at the time, but I remember thinking that we seemed to be extremely lucky in the support that we were receiving from around the world for our client's shares. Frankly, it never dawned on me or on any of my colleagues, who are people of the greatest professionalism and honesty, or indeed on anyone in the City, including the stock exchange and the regulators and others who monitor such matters, that that strong share price was not simply fortuitous or the result of objective assessments around the world of the potential attractions of Guinness, but was engineered by a co-ordinated share support operation.

My main point of substance here is that it would probably never have dawned on anybody, other than those who were a party to the illegal share support operation, that anything untoward was going on, had it not been for the fact that in the United States the various regulatory authorities, the Justice Department, the Attorney-General's office in New York state and the Securities and Exchange Commission were conducting an investigation into insider dealing on Wall street, which resulted originally from the Levine affair.

The United States authorities make much more imaginative and better use of plea bargaining than we ever have in Britain. Through the Levine affair, they succeeded in breaking into a much more important insider dealing ring run by Boesky; through plea bargaining with him, they succeeded in convicting the biggest insider dealer of all time, Milken. It was not until Boesky did his deal with the American regulatory and investigative authorities that anything came to light. As part of his plea bargain, he was committed to revealing all his insider deals. So far as I know, he did so, but who knows whether he finally made a comprehensive confession? One of the important deals in which he had been involved that he revealed was the Guinness insider dealing operation. It was at that point that our authorities were alerted and investigations began in Britain.

I recall very well the first that I and my colleagues knew of the matter. At 9 am on 1 December 1986, DTI inspectors arrived at my firm, seized documents and began their investigations. A few weeks later, the director

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responsible for the Guinness transaction, Mr. Seelig, was required to resign at an emergency board meeting held that day. As my hon. Friend the Member for Bexhill and Battle said, it was not until a month or so later, at the end of January, that to our great amazement, the chairman of our holdings board, Lord Catto, was summoned to the Bank of England and told that the chairman of the bank, Christopher Reeves, and Mr. Graham Walsh, the head of the corporate finance department, must immediately leave the firm or we would be deprived of our accepting house status. That, of course, led to another emergency board meeting where the head of our treasury operations said that we should suffer distinctly in the markets if we lost accepting house status. There was no practical alternative to agreeing to the demands made of us by the Bank of England.


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