Examination of Witnesses (Questions 240
- 248)
WEDNESDAY 21 OCTOBER 2009
MR DAVID
MESSOM AND
MR PHILIP
HARDMAN
Q240 Chairman:
The reason I was asking the question, though, (and it comes back
to this issue about security of supply) is because part of the
reason that you gave for Dairy Farmers being incapable of renewing
their contract were two matters: (1) straightforward competitiveness
with reference to the price, and (2) quality of service, and to
address some of those issues might have raised matters of what
were their future investment prospects.
Mr Messom: Understood; yes.
Q241 Chairman:
If you are then looking at the business, when you work out the
strengths and weaknesses of a supplier I would have thought (and
it would be reasonable) that you might have to come to a conclusion
as to whether, in fact, it was a well run business or not, because
part of who you want to do business with is, are they going to
be there tomorrow?
Mr Messom: It is a fair comment.
Yes, that would be regular dialogue with all companies in terms
of every one of our suppliers' future, what they are investing
in plant; and they gave us reassurance at regular meetings that
I had with their sales director and managing director that they
had got big plans for continued investment in their plants to
continue to improve efficiency, and everything they were saying
to us was in a positive way that they were there for the long
run and they were going to be a very sustainable supplier to the
industry.
Q242 Chairman:
You had no reason whatsoever to doubt the veracity of those statements?
Mr Messom: Once we get into a
situation where in the public domain conversations were being
had in terms of Portsmouth and Fole Dairies, closing them down,
redundancies, then, yes, we had more and more of those sorts of
conversations.
Q243 Chairman:
Going back to the answer to the first question, when I asked you
why you thought it had folded you gave as one of the answers the
price that they paid for ACC.
Mr Messom: Yes.
Q244 Chairman:
Did you form that judgment with the benefit of hindsight? Sometimes
when people sell things you sort of breathe a huge sigh of relief
and think, "How the hell have we got away with that one?
I do not know where they are going to get the money for it, but,
jolly good, they are the customer, thank you very much, I will
take the money. I am not going to say anything publicly about
it", but privately you might well have started to ask yourself
the question, "We got more than we expected. How on earth
are they going to do it?" Did that kind of internal dialogue
ever happen within your organisation?
Mr Hardman: To speak to events
at the time, I think you recognise when you go through a process
like this that nearly every bidder is in a different place in
the life cycle of their organisation. Dairy Farmers of Britain
were at the start of a strategic plan to vertically integrate
their business as far as they could and to grow it significantly
and at speed, and they obviously went through several acquisitions
following the ACC one, none of them of the same sort of dimensions.
I think we sent you the leaflet that the chief executive put out
on the morning of completing the ACC deal.
Q245 Chairman:
This confident, glossy publication.
Mr Hardman: Indeed.
Q246 Chairman:
This is the one: "Creating a new force in the UK dairy
industry."
Mr Hardman: Absolutely.
Q247 Chairman:
Written in glowing terms. It is interesting to read it with the
benefit of hindsight.
Mr Hardman: Absolutely. Events
could have turned out completely differently, in which case he
would have been heralded as having done a fantastic deal and what
a snip. At the time did we think they were paying a good price?
We thought they were paying a good price. Was it justifiable to
them? It must have been; otherwise they would not have paid it.
Q248 Chairman:
I do not want to get into the business of double-guessing what
was in their minds; I am in no position so to do. I think what
I am interested in from the professional standpoint of people
who have been in the dairy industry as long as you have is really
to get a view (and, bearing in mind they do not exist any more,
feel free to be straight with the Committee), to try and understand
whether, from a professional point of view, you felt the kind
of commercial decisions they were making were sensible, well-founded,
or there were times when you were thinking, "God, I do not
know whether I should have done that. If I was in their position,
I would be thinking twice about it."
Mr Messom: I think at the time,
although I have to say I am on the trading side and I was not
on the ACC side of the business, I do not think there was discussion
internally of what you are alluding to in terms of, "Cor,
we have got away with it", or whatever. There was none of
that discussion at that moment in time. I think there was pleasure
that we had actually exited our last food production unit and
that we were now out of all food production. I would argue, or
say, that certainly my view that I thought they had paid too much
was one of hindsight, but it was not discussed at the time.
Chairman: Gentlemen, thank you very much
indeed for assisting us with our inquiries and also for the very
helpful written evidence and other material that you have sent
us. We look forward, in confidence, to receiving the further details
on the subject of the price differential. Thank you very much
for contributing. It so happens that things do not always work
out as you have planned. Having announced that Lord Grantchester
and Mr Smith were not going to give evidence to us, we are now
in the fortunate position of being 25 minutes away from the vote
and with sufficient members to start that inquiry. I am going
to take the heroic decision that we do reverse the decision we
made earlier and invite the next two witnesses to come forward
and start the process. From the Committee's point of view, it
is easier that we take the evidence now than it would be to postpone
it. Could we change witnesses and move on? Apologies again for
any further change in the programme but at least you know it is
live and not recorded!
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