Enterprise Bill

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I have some observations on the argument of the hon. Member for Huntingdon about the automatic nature of the prohibition. The United Kingdom is unusual in allowing mergers to complete prior to scrutiny. We strongly argue that this clause is a necessary balance to the fact that mergers can take place with a degree of power that would otherwise prevent the Competition Commission from doing its job thereafter, as a result of further activity being taken forward.

Mr. Djanogly: I thank the Minister for giving way on that important point. As he says, in most other countries, permission has to be gained before the merger takes place. That is not the case in this country and mergers can take place, so the companies will already have incurred costs. They will have spent a substantial amount of money not only on the merger, but on integrating the systems. If a merger takes place, the companies have to prepare for that situation.

Is it not therefore the case that companies should either have to get consent beforehand or be able to get on with it and take the consequences if the OFT decides that they must divest, or accept some other type of order? Are we moving towards a halfway house where, on the one hand, companies will be able

Column Number: 373 to complete but, on the other, they will not be able to make the necessary preparations for that completion?

Mr. Alexander: I prefer to characterise the position that we are adopting as a balanced approach rather than a halfway house. I have a couple of observations, following on from the hon. Gentleman's remarks. First, there will be an initial finding by the OFT about mergers in those circumstances likely to lead to a substantial lessening of competition. There remains scope for companies to agree a tailored undertaking with the OFT, if they do not like the terms of the statutory restrictions. In that sense, there is an adequate and appropriate degree of flexibility but, on the other, the clause is necessary to allow the Competition Commission to do its job.

How companies manage the merger process is a matter for them. We aim to provide an appropriate degree of certainty. There remain provisions whereby companies can notify authorities in advance and build into their merger-planning the assumptions necessary for the appropriate involvement of authorities. On that basis, the clause is entirely consistent with the Bill's broad thrust.

Mr. McWalter: Bearing in mind concerns that have been expressed in Committee, can my hon. Friend the Minister confirm that, among other things, the clause will be particularly important where people want to create quick-sale mergers and engage in making wholesale redundancies, factory closures and so on? The clause could protect workers in that situation.

Mr. Alexander: I am grateful for my hon. Friend's observations. As I said at the beginning, there are circumstances in which, without the Bill's provisions, mergers could immediately be followed by a mass lay-off of staff. Given the significant development in the integration of computer systems, the ability of many modern businesses to decouple or divest after mergers could be commensurately undermined without the provisions. We are therefore clear that the clause is important to balance companies' needs to be able to plan merger activities with the power that the Competition Commission must be given to do its job.

Mr. Waterson: Will the Minister help me? My understanding is that the provisions are not designed to deal with the situations outlined by the hon. Member for Hemel Hempstead, which are matters for employment legislation. If the provisions could be so used, the Committee would be interested to hear about it.

Mr. Alexander: I fear that we are confusing cause and effect. The terms on which the Competition Commission acts are consistent with the rigorous competition test outlined in the White Paper and the Bill. The reality of overlooking the need to stop divestment at a particular point, or at least to allow the commission to investigate, could well fit the circumstances described by my hon. Friend the

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Member for Hemel Hempstead, not just in terms of employment, but in strategic decisions taken on shares, investment, employees or computer systems in the company. I hope that I have answered hon. Members' questions.

Question put and agreed to.

Clause 73 ordered to stand part of the Bill.

Clause 74 ordered to stand part of the Bill.

Clause 75

Section 73 and 74: further interpretation provisions

Mr. Alexander: I beg to move amendment No. 182, in page 55, line 1, leave out `(8)' and insert `(1)'.

The Chairman: With this it will be convenient to take Government amendments Nos. 183 to 186.

Mr. Alexander: We hold our hands up. The amendment simply corrects an error in the reference to a particular subsection, so it is purely technical. All the references in subsection (2) to "(8)(a)", "(8)(b) and so on, should have stated "(1)(a)", "(1)(b)" and so on. In light of that, I ask hon. Members to support the amendment.

Amendment agreed to.

Amendments made: No. 183, in page 55, line 3, leave out `(8)' and insert `(1)'.

No. 184, in page 55, line 5, leave out `(8)' and insert `(1)'.

No. 185, in page 55, line 6, leave out `(8)' and insert `(1)'.

No. 186, in page 55, line 8, leave out `(8)' and insert `(1)'.—[Mr. Alexander.]

Clause 75, as amended, ordered to stand part of the Bill.

Clause 76

Interim undertakings

Mr. Alexander: I beg to move amendment No. 266, in page 56, line 20, after `section' insert—

    `; and references to the acceptance or giving of undertakings under this section shall be construed accordingly'.

The Chairman: With this it will be convenient to take Government amendments Nos. 267 to 269.

Mr. Alexander: The amendments seek to ensure that undertakings on orders accepted by the OFT that are then adopted by the Competition Commission or the Secretary of State are treated like other undertakings or orders. The technical amendments are needed because at various points in part 3 we refer to undertakings that have been accepted under clause 76 and orders that have been made under clause 77. However, undertakings on orders can also be adopted under those clauses if they have been previously accepted or agreed by the OFT. We therefore need to be clear that such orders should

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be treated in the same way as other orders, to which they are in all respects equivalent.

Amendment agreed to.

Clause 76, as amended, ordered to stand part of the Bill.

Clause 77

Interim orders

Amendment made: No. 267, in page 57, line 16, after `section' insert—

    `; and references to the making of orders under this section shall be construed accordingly'.—[Mr. Alexander.]

Clause 77, as amended, ordered to stand part of the Bill.

Clause 78

Final undertakings

Mr. Waterson: I beg to move amendment No. 67, in page 57, line 30, after `undertakings', insert—

    `, but no such undertaking may be accepted from persons other than one who is a party or is a member of the same group of companies as a party to the merger or anticipated merger in question'.

The Chairman: With this we may discuss amendment No. 68, in clause 80, page 58, line 28, after `section', insert—

    `, but no such order may be made against any person other than one who is party or is a member of the same group of companies as a party to the merger or anticipated merger in question'.

Mr. Waterson: We move to the final powers available under this part of the Bill. On the question of final undertakings, amendments Nos. 67 and 68 are basically identical except that amendment No. 68, which raises exactly the same point, would amend clause 80. The point behind the amendments, which I hope is fairly obvious, is to prevent undertakings being sought from, or orders being made against, those who are not party to a merger or an anticipated merger. The joint committee of the Law Society and the Bar, which has been following the legislation closely, raised that point, which was one among a number of helpful suggestions that it has raised.

The new powers are drafted in wide terms and will give the Competition Commission power to accept undertakings from persons it considers appropriate. We do not want to see, and business certainly does not want to see, what is supposed to be a merger investigation effectively turning into an investigation into a whole industry. The Bill provides for looking into that sort of thing, but this is not that provision. In that context, the Competition Commission and the OFT should not be empowered to make orders against parties who are not party to a merger or an anticipated merger. We are deeply sceptical about why the power should have been drafted in such wide terms, and no doubt the Minister will take us through

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the Department's thinking. We need a pretty strong justification from him as to why people wholly unconnected with the merger should be drawn into the process.

11.15 am

Dr. Vincent Cable (Twickenham): I want to say a few words in support of the amendment and the legal community's helpful approach to clarifying existing vague and woolly language. It would be helpful if the Minister could give examples of the way in which people who are considered appropriate under the legislation could be involved in an undertaking although not party to a merger. Consumer groups, affected workers and so on might have an interest in mergers but would not be involved in giving undertakings. The only people I can think of who might be involved are competitors, as the hon. Member for Eastbourne said, and other people within the industry. I shall quote a couple of topical examples that might suggest how the clause could come into play—the Minister has confirmed that that is the intention.

In the banking sector, there is a high level of concentration among the leading clearers and there have long been arguments about whether mergers should be allowed among those in the remaining group. Let us suppose that an ambitious, expanding clearer such as the Royal Bank of Scotland, which owns NatWest, moved in on Lloyds TSB and the competition authorities considered that inappropriate in competition terms. Is it the intention of the clause that the Competition Commission could say in its determination not only that the merger was unacceptable, but that written undertakings would be required from Barclays and HSBC that they were not engaged in comparable merger activities even when they had not contemplated such activities? That is the sort of hypothetical situation in which the clause might come into play.

Another topical example about which I have written to the Minister concerns competition in the accounting profession, which is a small group and will become even smaller with the disappearance of Andersen into Deloittes. The competition authorities might discourage that merger because it would result in excessive concentration but then demand of PricewaterhouseCoopers that it divests some of its business to improve competition in the industry. The clause is so openly phrased that it could lead the competition authorities into such powers, which would be new. I am not completely familiar with the history of competition policy, but I would have thought that the clause could open new vistas and uncertainty. Perhaps the Minister will clarify with examples exactly what the provision is intended to cover and not to cover.

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Mr. McWalter: In his reply, will my hon. Friend the Minister take into account the back reference to clause 33(3)(b) which states:

    "recommend the taking of action by others for the purpose of remedying, mitigating or preventing the substantial lessening of competition"?

That might refer to the fact that some companies have a sweetheart company and could facilitate a merger that is not in the public interest by getting it to divest itself of certain interests, which makes it impossible for the merger not to go ahead. Is that, rather than the observations made by the Opposition, what my hon. Friend has in mind?

Mr. Alexander: The amendments seek to prevent third parties from being the subject of undertakings or orders following merger inquiries. I start with a candid confession: I share the concern that third parties should not be drawn unnecessarily into the remedy-setting process following a merger. It is the decision of the parties to merge, if that could lead to a substantial lessening of competition, that the authorities will address. The merger parties must be the focus of any remedy, whether by seeking an undertaking or, in exceptional circumstances, by imposing an order.

I am not convinced of the case for the amendment, however. The approach taken on both undertakings and orders mirrors the provisions of the Fair Trading Act 1973, which has been in place for almost 30 years. The Act's order-making power in section 73 does not mention the parties that may be subject to an order.

I emphasise that although clauses 78 and 80 may not, on the face of it, appear to limit who can be subject to an undertaking or an order, the commission's freedom for manoeuvre is actually limited by clause 39. Clause 39(2) requires that where action is taken

"to remedy, mitigate or prevent the substantial lessening of competition . . . or . . . any adverse effects which have resulted",



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