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8.45 pm
Dr. Vincent Cable (Twickenham): Several references have been made to my colleagues in the other place. Indeed, we have people there who are experienced City practitioners and lawyers. I am neither, but I shall try to interpret their approach to the problem that was brought to their attention by the takeover panel, which, as has been generally observed, was concerned about the way in which its practices should be properly incorporated into the Bill, and by independent investors who have been effectively protected by the way in which it operated.
Two essential problems have been adequately described. The first is duplication and overlap between the market abuse investigations and the work of the takeover panel and its City code, and the other is fairness, which the right hon. Member for Wells (Mr. Heathcoat-Amory) explained at some length. The principle of fairness means that a company that has complied in good faith with the takeover code should not be subject separately to a market abuse investigation--the problem of double jeopardy.
Our understanding is that that problem has been adequately taken on board. The Government have accepted the thrust of the criticism from the Opposition and the City that a safe harbour should be explicit in the Bill for companies that comply with the City code. Therefore, the basic point about unfairness has been adequately addressed, but that leaves a residual problem: how to deal with conflicting judgments. In other words, there can be different interpretations of compliance with the City code and its overlap with market abuse. That problem constitutes a narrow area of disagreement that still remains.
The broad proposition that guided debate in the other place was summarised by Lord Donaldson--a Cross- Bench peer, not part of the party politics on the matter. He said:
- My Lords, I take it that it has been generally agreed that, as a general proposition, in principle the views of the FSA on these matters should prevail over those of the Takeover Panel.--[Official Report, House of Lords, 18 May 2000; Vol. 613, c. 406.]
Our understanding is that the reference to the panel's need to keep itself informed of how it interprets and administers the provisions is sufficient. That may be flabby language, as the right hon. Member for Wells said, but it represents an attempt to find a form of words in which the FSA's primacy is clearly accepted and in which the need to make cross-reference to the code is recognised. The peers' judgment was that there was no need to raise further objections because the fairness point had been accepted, the jurisdiction had been clearly defined and the work of the takeover panel had been incorporated. Therefore, 90 per cent. of the objections of those who were concerned with code and the takeover panel had been met.
Mr. Loughton: I have a few brief comments in support of Opposition amendment (b) in preference to the Government's ham-fisted effort amendment (a). I take it that the Liberals support the Government's amendment as they seem to have done some strange deal in another place.
The panel of takeovers and mergers, which has had a good track record for more than 32 years, is under attack from the Government. Can the Minister give me any example from those 32 years of when the panel would have done its job better, or of when it failed in its job because it did not have another authority--such as the FSA--constantly looking over its shoulder or because
such an authority was in competition with the regulation that the panel was trying to impose? If the Government get their way, there will be a severe case of too many cooks spoiling the broth.It is not only Opposition Members who say that; the takeover panel itself expressed serious concern--even after the Government cobbled together their new amendments. My hon. Friend the Member for Arundel and South Downs (Mr. Flight) quoted Patrick Drayton, the director general, whose comments on the amendment are littered with warnings of the uncertainty that will be caused. Mr. Drayton warns that the UK system will become slow and over-regulated. The uncertainty will have serious consequences for the reputation of each regulator.
Those are serious words from an organisation that has acquitted itself exceedingly well in the conduct of takeovers and mergers in the City of London for the past 32 years. My right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) has an understanding of the legal implications of the measure that is infinitely superior to that of the rest of us--as the Minister found to her cost. As he pointed out, it comes down to a question of control. The Government are obsessed that the FSA should keep control in that matter and that they should keep control of the FSA, even though there is the prospect of a serious clash--potential double jeopardy, as my right hon. Friend the Member for Wells said earlier.
Why do the Government want to denigrate the success of the panel by causing confusion as to its future role? The panel has been successful because it offers speed, certainty and flexibility in takeovers. In Committee and subsequently, Government Members gave as a reason for not splitting the roles of the chairman and chief executive of the whole authority the need to act swiftly when there were potential cases of market abuse or other issues that required action. Some of the fastest-moving aspects of the financial services industry relate to the mergers of large firms in a highly cut-throat and competitive market. They are playing for large stakes; huge fees are involved for an enormous phalanx of professionals in the City and abroad.
The reason for the great success of the takeover panel is that it exists in a spirit of co-operation with the people it supposedly regulates; it relies on a huge reputation for integrity in the City of London. This is a case of "If it ain't broke, don't fix it." Would the takeover of Mannesmann by Vodafone or the merger under way between Glaxo and SmithKline Beecham have happened as smoothly--especially as there were other suitors on the horizon--if organisations other than the takeover panel had been involved? The panel has a clearly defined code of conduct for such matters, but what would have happened if another authority had had a look-in at the feast? We know that one large takeover--the merger between British Airways and American Airlines--was frustrated because of excessive regulation, especially in Europe and America. The whole deal was called off.
There is potential for extra confusion as a result of the Government's proposals to replace the Lords amendment. We desperately need to be able to take decisions quickly. Two decision-making bodies might come up with two different decisions. That must take longer than if just one were involved and it would materially affect the outcome of any takeover that may be taking place.
We also need to be assured that the FSA is capable of working within the tight time scales within which the takeover panel operates; it usually makes a ruling within 60 days. If the Government amendment is accepted, the panel's decisions will no longer be final. However, we need the certainty that any decision will be final. The amendment will deter co-operation between takeover partners and the takeover panel, because the partners might fear that they may be implicated in market abuse. There will be great confusion as to whose interpretation of the takeover code is conclusive. Will it be the interpretation of the takeover panel or that of the FSA?
My biggest fear has already been mentioned. There is a real threat that parties could deliberately drag the FSA into their attempt to frustrate a bid. They could use that as a spoiling tactic to sabotage a takeover. In the world of takeovers and mergers, an unwilling party who is the subject of a takeover bid has an incentive to do just that.
All that confusion will replace the well-versed certainty and successful track record of the takeover panel. Extra overlap, over-complication and uncertainty all amount to over-regulation. As we have found out during its passage through Parliament in the past two years, that is what the Bill is all about.
What are the compensating benefits of the additional powers that the FSA will have to stick its nose into takeover panel territory? Where has the panel gone wrong? What will be better as a result of the new role that is proposed? Our amendment (b) would not mean that all powers would be given exclusively to the takeover panel. The amendment contains the phrase:
- Except at the request of . . .
As my right hon. and learned Friend the Member for North-East Bedfordshire pointed out, our amendment contrasts with the meaningless waffle in Government amendment (a) which states that
- the Authority must keep itself informed.
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