A monstrous brewing deal we will all regret
'The evidence is overwhelming that market concentration on this scale is bad for the consumer, bad for small competitors, and bad for employment and diversity'
Saturday 10 August 1996
What is proposed is that Bass acquire Carlsberg-Tetley, itself the result of a merger in the early 1990s between the UK brewing interests of Allied Domecq and Carlsberg of Denmark. For Carlsberg the deal with Allied proved nothing short of disastrous. Carlsberg-Tetley doesn't make any money, despite a relatively large share of the market. Bass offers Carlsberg the possibility of salvation - a minority stake in what would become Britain's largest brewing operation by far, and a highly profitable one at that. Allied, too, needs to get shot of this albatross. If they were honest about it, the other big players might welcome the deal as well for it offers the prospect of brewery closures, less competition, firmer beer prices and a period of upheaval at Bass in which to win market share.
For the rest of us, however, and for the legion of small brewers which these islands thankfully still supports, this deal is a bad thing and should be fought. Bass is already the second-largest brewer in the UK with about 25 per cent of the market. Most of us would think that already too large. With this deal, Bass would leapfrog S&N with about 30 per cent of the market to take something approaching 40 per cent. With 70 per cent of the market accounted for by just two players, and half of the rest by a third, Whitbread, the others are not going to stand a chance. Slowly, but surely, they will be squeezed out of business.
As I understand it, the case for the merger goes something like this. Carlsberg-Tetley loses money. A Bass takeover would be a less painful way of carrying out the necessary rationalisation. To leave it struggling on alone would merely be to sentence it to prolonged death by a thousand knives. Furthermore, since the Government has already allowed S&N to do something similar, it would be oppressive and discriminatory to stop Bass.
Ian Lang, President of the Board of Trade, might find some merit in these arguments, but I'm blowed if I can. The evidence is overwhelming that market concentration on this scale is bad for the consumer, bad for small competitors, bad for employment and bad for diversity. Since Australia allowed its six brewers to merge into two in the 1980s, beer prices have never looked south and consumer choice has suffered abominably. It is no accident that beer prices in Scotland, where there is an effective duopoly, are so much higher than they are in the North of England and the Midlands. Carlsberg should be forced to resort to its fall-back plan - buying out Allied and trying to make a go out of this bombed out and deeply demoralised company.
Is the City on Target for the euro's launch?
For most people, the debate now raging over access to Europe's new "Target" system for interbank transactions in euros must seem about as relevant as a 10-bob note. Unless you are a reader of the of the Financial Times and the Economist, whose arcane columns have been banging on about this for some months, you would scarcely have noticed it at all. Yet among central bankers, better informed politicians, and forward thinking commercial bankers, it seems to have become a matter of some importance.
At this stage, it is hard to tell whether these matters are actually going to mean much for London's foreign exchange markets or not. About the most that can be said with any certainty is that they might do. The issue has none the less assumed a symbolic significance, one that characterises the divide between those who are committed to the single European currency and expect to be in it two years hence, and those like ourselves who are more than likely to be out.
Target - the acronym for Trans-European Automated Real-time Gross Settlement Express Transfer - promises to be more than just a settlement system for transactions in the new single currency. It is also the mechanism through which the European central bank will pursue monetary policy. Interest rates will, in part, be set through the liquidity that the central bank provides to facilitate large-scale interbank transactions in the euro.
This all sounds like deeply technical stuff, but the point at issue can be distilled into something relatively simple. The French and the Germans, who will form the core of the new currency union, believe that their own banks should get more favourable liquidity terms than those operating among the outs. Why, they say with some justification, should the outs get all the benefits of the euro while not having to abide by its disciplines?
There is a subtext here, of course, which goes beyond the old debate over a two-speed Europe. Britain has the largest foreign exchange markets in the world. Frankfurt and Paris are both jealous and suspicious of this position at the same time. The idea that the main market in the euro could actually be in London, where the new currency won't even buy a pint of beer, is anathema to them. If they can disadvantage the Anglo-Saxon speculators of the City, so much the better.
I've no idea who is going to win this battle. The Bank of England is naturally in there batting for Britain at tortuous negotiations taking place under the auspices of the European Monetary Institute. But the wicket is a sticky one given Britain's ever more stand-offish position in Europe.
Does it really matter if the battle is lost? My own view is that it probably doesn't. Markets these days are global and the City is an ingenious and innovative player in these things. The idea that euro trading will gravitate to Frankfurt and Paris simply because the European central bank offers them advantageous terms of access to Target doesn't strike me as a very credible one. If the European central bank discriminates, somehow or other the City will find a way of bypassing it.
This is not to say that European monetary policy will be determined by Anglo-Saxon speculators, but one way or another they will continue to have their say. The London Investment Banking Association is surely right to warn of lack of preparation in the City for the advent of the euro. But I suspect the City will be just as capable of holding its own in the new euro markets as it is now when it comes to trading in the French franc and German mark.
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