Beckett blocks brewery merger
Saturday 28 June 1997
While the ruling will in the short-term safeguard the estimated 2,500 brewing jobs that would have been lost had the merger been sanctioned, industry sources suggested that at least 500 workers could lose their jobs anyway. Carlsberg-Tetley is believed to to want to close two of its five breweries to stem a continuing decline in its business, in part brought about by there being too much brewing capacity in the UK.
Mrs Beckett's decision was viewed by analysts in the City as heralding a tough new Government line on competition issues, and it could cast fresh doubts about the planned pounds 23bn merger between Grand Metropolitan and Guinness, the two giant spirits companies. "There looks to be a sea change in Government policy. This has got to raise more concerns about other big mergers in the future," said one leading drinks analyst.
Mrs Beckett claims that the merger between Bass and Carlsberg-Tetley merger would have lead to higher wholesale and retail beer prices. "The greater concentration in brewing, the company's stronger brand portfolio and its enhanced position in wholesaling reinforced by ownership of a large tied pub estate would lead to significantly increased market power for Bass," she said.
"I have also accepted the MMC's conclusion that the merger may be expected to be against the public interest, in that, over the longer term, the supply of beer at the wholesale level would be reduced, wholesale prices would be higher than they would otherwise have been and there would be a consequential increase in retail prices, " Mrs Beckett added.
The deal would have given Bass a 37 per cent share of the UK beer market, well ahead of its nearest rival Scottish & Newcastle which sells 29 pints out of every 100 sold. It would also have given Bass a huge concentration of power in certain areas of the country such as the Midlands, where it stood to control more than 70 per cent of the market.
Sir Ian Prosser, chairman and chief executive of Bass, was "extremely disappointed by the decision" but accepted Mrs Beckett's ruling. It is thought that Bass would have pulled out of the deal even if Mrs Beckett had accepted the MMC proposals because selling 1,900 pubs - almost half of its estate - was too heavy a price to pay.
But David Newbery, Professor of Applied Economics at Cambridge and one of the four members in the MMC's panel, completely rejected the deal on the grounds that, even with the concessions, Bass would have too much market power to influence beer prices.
In adopting Professor Newbery's views, Mrs Beckett said: "I am not persuaded that the divestment of 1,900 pubs would been an adequate counterweight to the substantial strengthening of Bass's position as a producer and wholesaler of beer, following the elimination of one of its three major competitors at the national level." Mrs Beckett also rejected all compromises including selling more pubs or divesting beer brands.
It is thought that Bass will now sell its 50 per cent stake in Carlsberg- Tetley back to its Danish parent Carlsberg. It bought the stake from Allied Domecq last August for pounds 200m. Under the complex terms of that deal it has the right to sell the stake to Carlsberg for pounds 110m and receive a pounds 30m- refund from Allied. It stands to lose pounds 60m from the venture but analysts believe the loss will fall to around pounds 35m as it is due to receive a share of the profits that Carlsberg-Tetley generated while Bass held a stake in the group. Bass will hold talks with Carlsberg and the Office of Fair Trading about the fate of its holding in the next few weeks.
Allied Domecq was not dismayed by the decision. Tony Hales, chief executive, said: "Today's decision by the MMC underwrites the value of our decision to insist on an unconditional sale of our brewing interests."
Nevertheless, under the conditions of last year's deal, Carlsberg can force Allied Domecq to pay pounds 33m for a near 15 per cent stake in the Carlsberg- Tetley. Allied Domecq is likely quickly to dispose of this stake if Carlsberg enforces this condition.
Carlsberg-Tetley's profits have been battered in recent months. Its market share has been steadily eroded by the other major brewers and staff morale has reached an all time low. "We are relieved the regulatory uncertainty that has surrounded our business over recent months is ended. However, there will be a general review of the business in the light of today's announcement," Ebbe Dinesen, chief executive of Carlsberg-Tetley said.
Analysts believe Carlsberg-Tetley will now have to embark on a huge restructuring programme to remain competitive. In its MMC submission the brewer admitted that it would have to undergo a drastic cost cutting programme to survive and would have to scale down operations to concentrate on its leading Carlsberg lager and Tetley bitter brands. It may have to close its Welsh and Scottish breweries in Wrexham and Alloa respectively.
On Carlsberg-Tetley's future, one analyst said: "It will have to take huge levels of costs out to improve profitability and there are not really any obvious bidders out there." He said the decision meant Carlsberg-Tetley would be "a wild card" in the brewing industry. With no pub estate to provide a ready market for its beers, it will be forced to undercut its rivals on price. Carlsberg-Tetley will outline cost-cutting proposals next week.
The decision was welcomed by consumer groups yesterday.
"We are happy with any move that will increase competition because that is good for consumers. Less competition would have lead to higher prices," said a spokeswoman for the National Consumer Council. "It would have meant higher prices and less choice. Whenever there is a merger prices seem to go up. The consolidation of the beer industry and the concentration of too much power in too few hands over the last few years has been bad for beer drinkers," said a spokesman for the Campaign for Real Ale.
The Transport and General Workers Union (TGWU), which represents most of Carlsberg-Tetley's brewing workforce, believes the merger would have resulted in the loss of at least 2,000 jobs. "We accept there could still be brewery closures and job losses but they will be less than under the merger proposals," said a TGWU spokesman.
Comment, page 23
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