Necessity Still Breeds Ingenuity - Archive of SQUALL MAGAZINE 1992-2006

The Corporation Rules UK

Investigation into corporate takeover of Derbyshire business

All 700 employees of a profitable British company were suddenly made redundant just a few weeks before Christmas. Why? Mathew Carr investigates how the UK government helped a transnational corporation do the dirty on Derbyshire.

Early 2001

There could not be a more definitive Labour heartland than the northeast Derbyshire town of Clay Cross. The birthplace of Dennis Skinner, this small town of nearly 10,000 has a long tradition of political radicalism closely connected to its mining past. Until late last year, the town's largest employer was the ductile pipe manufacturer Biwater Industries, with 700 workers. A descendant of the historic company founded by the inventor George Stephenson in 1837, Biwater was a pillar of the local economy, with an annual turnover of £60 million and a booming overseas order book. Whereas other British manufacturers had been badly affected by the strong pound and foreign competition, Biwater had remained buoyant, more than doubling its production during the past decade.

On April 12 2000 the giant French-based multinational, Saint Gobain, announced it had signed a share purchase agreement for Biwater through its Ilkeston-based subsidiary company Stanton plc. The workforce had no reason to expect drastic changes. With 80 per cent of production already destined overseas, shop stewards assumed Biwater would continue to produce mostly for export whilst Stanton plc concentrated on the UK. In meetings with Biwater's management, they were assured that Saint Gobain would provide much needed investment, whilst the company's owner - former BBC governor and Thatcher crony Adrian White - was equally upbeat, declaring that the merger would "leave the Biwater Group free to focus on its core businesses."

In the same month the Office of Fair Trading began a routine investigation to check the merger was in accordance with competition laws and recommended its approval to the Department of Trade and Industry in June. Then on September 4 the bombshell exploded. At 3pm Saint Gobain announced the formal completion of its acquisition. Forty-five minutes later stunned shop stewards were informed by management that the company was to be shut down within three months and the entire workforce laid off. Saint Gobain referred to the job losses as 'regrettable' but claimed closure was necessary to protect its UK manufacturing base.

THE NEW OFFICE OF FAIR TRADING DIRECTOR GENERAL MADE THE ASTOUNDING ADMISSION THAT HIS OFFICE HAD KNOWN THAT BIWATER WAS GOING TO BE CLOSED ALL ALONG.

The workers believed that Biwater had become a victim of its own success and that the acquisition had been carried out in order to take over the company's overseas order book and establish a quasi-monopoly in the ductile pipe industry.

"They couldn't compete with us and they couldn't undercut us," says GMB shop steward Hugh McNeil. "So this was the only way they could do it, by buying us out."

With the support of local councilors and MPs, the workers began campaigning furiously to persuade the government to keep the company open. The campaign was spearheaded in Westminster by MP for North East Derbyshire Harry Barnes, who called on DTI Secretary of State Stephen Byers to use his powers under the 1973 Fair Trading Act and refer the merger to the Competitions Commission. At the end of September a deputation of Biwater's campaigners met Byers personally at the Labour Party Conference and initially the minister appeared sympathetic. In a fighting speech to the conference Byers promised that "where there is real pressure and difficulties in areas like textiles, coal and steel and in specific plants like Biwater in Clay Cross, we must not stand to one side. We won't walk away."

It soon became clear that this was exactly what the Secretary of State intended to do. On October 3 he wrote a letter to Saint Gobain's Chief Executive, Jean Louis Beffa, headed "Dear Jean-Louis" and signed "with personal best wishes, Stephen". Byers asked his friend to reconsider, and promised government help to keep Biwater open. Beffa predictably refused, and even claimed with breathtaking hypocrisy that the closure had only been announced with such unseemly haste in order to "avoid future uncertainty among the workforce".

By now Harry Barnes had accumulated a copious dossier of information to show Biwater's financial viability, including its annual report for the previous year, and figures showing a surge in overseas orders during August as a result of rising oil prices. In the face of mounting pressure, Byers took the unusual step of asking the OFT to publish its initial report into the acquisition. On October 16, the OFT published an edited version of its report. In the report the new OFT Director General made the astounding admission that his office had known the plant was going to be closed all along, but that the OFT had not considered this information 'relevant' enough to be included in his recommendation.

This revelation strengthened the case of Biwater's workforce, who were now able to point out that the DTI's approval was based on misleading information. It also appeared to exonerate Byers and the DTI, though some local observers were struck by the speed with which the East Midlands Government Office (EMGO) had reacted to the closure announcement in September, setting up a special response unit that one local government officer described as 'economic first-aid'. As revealed in the minutes of a meeting of the Chesterfield Area Regeneration Team, which took place on September 8 just four days after the takeover, one EMGO Officer explained that his department had been in discussion "for weeks" about the closure and that a "meeting at a high-level" had been convened to discuss the best way to respond to the mass redundancies.

Since the EMGO is responsible to the Department of Trade and Industry, this casts some doubt on the DTI's claims to have been unaware of the forthcoming closure when it first approved the merger. Why was a department controlled by the DTI in discussion with Biwater's management before the closure was announced? Why had local government officers not made this information available beforehand? Under whose authority had the "high-level discussions" been initiated?

Like most officials involved in the Biwater affair, the EMGO has refused to answer any questions on the grounds of commercial confidentiality, the same justification used by the OFT for not having revealed the closure to the unions or local authorities.

THE DTI JUNIOR MINISTER'S SPEECH CONTAINED ALL THE SKEWED LOGIC OF A POLITICIAN DEFENDING THE INDEFENSIBLE.

In its original report the OFT said that no unsolicited representations had been received from third parties, though "officials consulted both customers and competitors". But when shop stewards asked how these consultations had been carried out they were informed that the OFT had solicited third party representations broadcasting the imminence of the merger via the Reuters news service. However the likelihood that any third party including customers or workers, would read the Reuters news service was extremely low. Furthermore as the intended closure had been omitted from the OFT's report no third parties would have realised a merger meant instant closure, even if they had chanced upon the obscure announcement on Reuters news service.

At this point Stephen Byers could have called for an investigation into the merger on the grounds that he had not been aware of all the facts when he approved it. Typically he handed responsibility back to the OFT and asked the new Director General, John Vickers, to consider whether the information supplied to Barnes was sufficient to warrant an investigation.

At the end of October a new front was opened when MEP Philip Whitehead traveled to Brussels with Biwater workers to press European Commissioner, Mario Monti, to investigate whether Saint Gobain had breached European competition laws and used EU grants in its buy out of Biwater.

On November 1, the Biwater campaigners finally got their parliamentary debate. Both Barnes and Dennis Skinner gave impassioned speeches protesting against both the closure and the OFT's dubious role in sanctioning it. In response Junior Trade Minister, Alan Johnson, admitted that mergers could be revisited in cases where "material facts in relation to a merger not in the public domain were not disclosed". Though this was clearly the case in the Biwater takeover, the Minister now claimed that the information supplied by Barnes did not constitute 'material facts' and that the DTI would still have approved the merger even if it had known. Johnson's speech contained all the skewed logic of a politician defending the indefensible, including his uncritical repetition of Saint Gobain's argument that Biwater had to be closed because of 'over-capacity in the UK market' despite the fact that most of Biwater's production was exported.

The following day the OFT Director General confirmed to Barnes that the OFT did not consider there to be sufficient grounds for an investigation. The tenacious MP continued to bombard Byers with faxes, pointing out that the DTI was not legally obliged to accept the OFT's recommendation and that it could still call for an investigation in cases where mergers a) contravened the public interest b) damaged UK exports and c) affected the balanced distribution of employment in the UK.

The Trade and Industry Secretary was running out of excuses for inaction. So far he had offered what Barnes described as "tea and sympathy" to Biwater's workforce, whilst simultaneously seeking to evade responsibility for the closure. Now he was forced to make a choice whether to reject his own civil servants' advice and risk confronting a powerful multi-national, or abandon the Biwater workers to their fate.

"IT'S THE GREAT FLAW WITH THIRD WAY POLITICS. YOU CAN TRY AND RECONCILE THE FREE MARKET AND SOCIAL JUSTICE, BUT IN THE END YOU HAVE TO COME OFF THE FENCE AND WHEN THEY [NEW LABOUR] DO ITS IN THE INTERESTS OF CAPITALISM."
- Harry Barnes Lab MP

In the nudge-wink world where governmental departments and big business intersect and nothing is ever written down, it is impossible to know whether any pressure was brought to bear on the DTI by Saint Gobain. The Biwater campaigners relished the prospect of the legal confrontation or judicial review expected if Saint Gobain's plan had been opposed by senior political figures. The campaigner viewed it as an opportunity to expose the multi-national's monopolistic intentions. Unfortunately for them, however, the political courage required was absent at a ministerial level. Byers was happier with New Labour soundbites, promising at the Regional Policy Forum Conference on November 15 to "widen the winner's circle" and "address the needs of the regions". The following day he informed Barnes in parliament that he would make his decision on the merger "as soon as possible", a reply which the local MP dismissed as "fiddling whilst Rome burns".

By now the EU had claimed that the Biwater merger was outside its competence, and a farcical situation had developed; with the EU Commissioner saying he would welcome 'an expression of concern' from the UK government, and Junior DTI minister, Alan Johnson, saying the UK government would welcome the intervention of the EU. On November 20, the same day as the first batch of Biwater workers were made redundant, Byers finally issued a bland official dispatch announcing that he had decided to accept the OFT's recommendations and that he would not be referring the merger to the Competitions Commission.

The confirmation of Byers' duplicity was a bitter blow to the Biwater campaigners. On November 24, a second batch of 108 workers left the factory for the last time following on from the 50 laid off earlier in the week and preceding the 542 due to follow them into sudden redundancy. Many of them may never work again, unlike some senior Biwater managers, who have already been promoted within the Saint Gobain organization. However, some management voices have clearly been as shocked by the ruthless closure of their company as their workforce. On Nov 31 a letter was sent to Harry Barnes from a sympathetic management insider containing information which the writer hoped would enable the MP "to establish a reprieve for the excellent Biwater Industries workforce and the good people of ClayCross". An edited version of the letter was forwarded to both Byers and the OFT. SQUALL has seen the letter, which states amongst other things that:

All this has been a disaster for Clay Cross, with an estimated loss to the local economy of £0.5 million per week, and the scandalous episode has made New Labour's Thatcherite agenda glaringly apparent, even to local Labour politicians like Harry Barnes. "I don't believe there is any previous Labour Trade Secretary who would not have referred this to the Competitions Commission," the MP told SQUALL. "It's the great flaw with Third Way politics. You can try and reconcile the free market and social justice, but in the end you have to come off the fence and when they do its in the interests of capitalism."

Defenders of Third Way politics have always argued that national governments are powerless to challenge 'the market ' in a globalised economy, but in the case of Biwater, government ministers simply refused to use the legal powers at their disposal. Not only did state institutions actively collude in the ruthless destruction of a successful industry by a powerful commercial competitor, but local government organs demonstrated a complicity with Saint Gobain's designs. Meanwhile the British taxpayer is picking up the tab in the form of unemployment benefit, impact studies and 'cross-authority working groups' including counselling for the newly unemployed. The Biwater workers can feel proud of the MPs and local politicians who fought their cause right up to the end. However, they are unlikely to feel the same about the Government, whose real allegiances are no longer local or even national.