PUBLIC CONTROL OF MERGERS

Publication Date01 Nov 1965
AuthorD. G. Goyder
DOIhttp://doi.org/10.1111/j.1468-2230.1965.tb02792.x
PUBLIC
CONTROL
OF
MERGERS
I. INTRODUCTION
EVER
since the rise to prominence of the limited liability company
in the second half of the nineteenth century company directors
have enjoyed the unquestioned freedom to seek control of the
business
of
other enterprises by acquisition of their shares
or
assets.
It
is true that a number of statutory provisions,1 strongly influenced
by the requirements of the London Stock Exchange, have been
enacted to govern the methods and procedures of such transactions.
The main object of these provisions is, however, the protection of
shareholders in the company acquired against fraud,
or
collusion
between those making the bid for control and the directors of that
company. By contrast there have been until the recent Monopolies
and Mergers Act,
1965,2
no provisions of law by whose operation an
attempted
or
completed acquisition may be subjected to scrutiny
by an independent outside body, in the light of its effects on the
public interest. The buying and selling of the shares
or
assets of
an enterprise has traditionally been regarded as simply the exercise
of
a
private property right which, if carried out in a fair manner,
concerns only the directors and members of the companies are
involved.
Some of the major acquisitions of the past fifteen years have,
of course, attracted wide press publicity and stimulated some
vigorous political controversy. But the sound and fury of public
and political debate centred until fairly recently on such relatively
peripheral issues as the receipt of
‘‘
golden handshakes
)’
by the
ousted directors, the accrual of capital gains to shareholders, and
the prospect of increasing American influence in important sectors
of British industry. Not until a flurry of major acquisitions in the
newspaper and periodical market, followed by the appointment
and Report of the Royal Commission on the Press,8 and the almost
successful attempt by
I.C.I.
to acquire control of Courtaulds, did
public discussion begin to touch on the central, and probably most
difficult, question raised by the merger of large companies. This
1
Companies Act, 1948,
8s.
191-194, 206-209, 287; the Prevention
of
Fraud
(Investments) Act, 1958,
8s.
7,
13.
14;
and the Licensed Dealers (Conduct
of
Business) Itales, 1960
(S.I.
1960
No.
1216), issued by the Board
of
Trade
under the authority given
it
by
8.
7
of
the 1958 Act. The standard textbook
in
this area is
M.
A. Weinberg,
Take-overs and Amalgamations
(1963).
2
1965 c. 50.
3
Cmnd. 1811 (19G2).
4
In
this article the term
merger
is used to describe the acquisition
of
control
by one enterprise over the business activities
of
another, in preference to
take-over
or
amalgamation,” although all
of
these terms are employed
in ordinary usage for this purpose.
The Act is summarised below,
p.
693.
654
Nov.
1965
PUBLIC CONTROL
OF
MERGERS
655
is the problem of how, without imposing unnecessary restraints on
commercial and industrial activity, to construct and enact, first,
statutory criteria by which to assess the desirability of such
mergers, and, secondly, administrative machinery for presenting
such issues in an orderly way to a body responsible for applying
such criteria.
It
is now widely felt that there should be some means
whereby the effects of at least those mergers involving companies
with large assets
or
a wide degree
of
market power can be syste-
matically examined, from a viewpoint wider than that merely of
the companies concerned.
That there should be some form of merger control is thus no
longer a political issue. Discussion focuses now rather
on
the
details
of
the method by which such control is to be applied, and
the substantive criteria to be adopted. The purpose of this article
is to examine some basic problems, economic and legal, substantive
and administrative, involved in establishing any system of merger
control, and to examine some of the particular solutions contained
in the Monopolies and Mergers Act. Comparative reference will
necessarily also be made to the considerable United States experi-
ence
of
merger control legislation, as applied by the federal courts
and administrative agencies of that country.
11.
A--THE DEFINITION
OF
A
‘(
MERGER
Whatever its long term objectives, the immediate aim of merger
control legislation is negative, to prevent, in appropriate cases,
two
or
more business enterprises from ceasing to be distinct. This
negative object has to be achieved by the prohibition,
or
the
undoing,
of
the act whereby one enterprise acquires control
of
another. Merger control legislation can therefore take one
of
two
forms:
it
may either state the general principle that, in certain
circumstances, enterprises will not be permitted to cease to be
distinct;
or
alternatively it may prohibit, in certain circumstances,
the performance of those specific acts whereby the distinctiveness of
enterprises can be ended. The
1965
Act takes the former approach,
United States legislation the latter. Whichever approach is adopted,
however, definition of what is meant by
(‘
the acquisition of
control
is fundamental.
No
difficulty normally arises in defining what constitutes the
acquisition of legal,
de
jure,
controlling interest; this is the posses-
sion of the right to control a majority
of
the board of directors,
or
ownership of shares conferring the majority of the voting power
normally exercisable at
a
general meeting.5 Because of section
184
5
Weinberg,
op.
cit.,
p.
8.
This
is
?ot the same as the definition in the
Companies Act,
1948,
s.
154,
of a holding company.” The Jenkins
Committee
on
Company Law
Reform
(Cmnd.
1749)
recommended that the
section should be amended
so
that control of the composition of the board
of directors would become the sole test for determining whether
one
companp
is
the subsidiary of another.

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