S&N escapes monopoly probe in Courage bid

Brewery takeover: Tough constraints on controversial pounds 435m deal look unlikely

JOHN SHEPHERD

and PETER RODGERS

Scottish & Newcastle's proposed pounds 435m takeover of Courage to create Britain's largest brewer is set to escape a reference to the Monopolies and Mergers Commission, according to well placed sources. The Office of Fair Trading is believed to have accepted most of S&N's arguments for allowing the acquisition.

The Government may impose conditions on the merger, such as forcing S&N to sell a brewery or some beer brands, but even this is now unlikely, the sources said.

The clearance will be seen as confirming a trend in official policy towards encouraging industrial rationalisation and efficiency. This trend increasingly involves riding roughshod over strict competition policy.

Brian Stewart, chief executive of S&N, has insisted vehemently that it will only command a 25 per cent share of the UK market and not the 30 per cent claimed by opponents to the takeover. Bass is the current market leader, producing almost one in four of the 10.4 billion pints of beer downed in the UK every year.

Clearance of the deal would be a break with tradition by the authorities, which have referred every large brewing deal to the MMC over the last couple of decades. The MMC's investigation list over that period includes the breweries-for-pubs swap deal between Grand Metropolitan and Courage, the brewing merger between Allied Domecq and Carlsberg, and the unsuccessful move in the 1980s by Elders of Australia to buy S&N.

Michael Heseltine, President of the Board of Trade, has quietly backtracked from the policy of most of his conservative predecessors that competition should always be the benchmark for determining whether mergers should proceed.

The most dramatic recent demonstration came last month when he overruled the MMC, which decided by a majority of four to two to recommend against allowing GEC to bid for VSEL, the warship builder.

Mr Heseltine has made no secret of his belief that some sectors of British industry need to rationalise further to compete internationally. There has also been increasing evidence of tension between Mr Heseltine and the Office of Fair Trading.

The previous OFT director-general, Sir Bryan Carsberg, made no secret of his disillusion with the government's apparently pro-business leanings on competition policy.

Industrial opposition to S&N's takeover of Courage is also minimal. Most brewers accept that concentration in the industry is inevitable, given the severe over-capacity problem.

The total amount of beer to flow out of S&N's and Courage's brewery gates amounts to 11.1 million barrels per year, which is slightly more than 30 per cent of the total production by all brewers of between 35 and 36 million barrels.

However, slightly more that 2 million barrels of the combined S&N and Courage output stems from contracts to brew and buy beer from other drinks companies. Courage, for instance, buys 400,000 barrels of beer from Carlsberg, the Danish brewer.

Excluding those contracts, the actual combined output of Scottish Courage falls to 9 million barrels. That equates to a 25 per cent market share, which falls further to 24 per cent after taking account of the personal import of beers from the Continent.

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