BREWERY DEAL FITS THE HESELTINE FORMULA

"There is an urgent need for new guidelines in this area that go beyond the airy-fairy encouragement for national champions we've had so far"
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Every large brewing deal in recent history has been referred to the Monopolies and Mergers Commission. Nearly all of them have emerged either dead in the water or with onerous conditions attached. So why should Scottish & Newcastle's bid for Courage, a deal which according to competitors will give S&N more than 30 per cent of the national beer market, escape unscathed?

One answer is that conditions have changed. Concentration of brewing capacity has become less important since the Government forced the big brewers to part with the bulk of their tied estates. Indeed, in countries where beer production is forceably separated from retailing of beer, it is common to have very substantial concentrations of capacity.

But perhaps the more revealing answer is that Michael Heseltine is now President of the Board of Trade and he seems deliberately to be following an "anything goes" mergers policy. Not that you would know this from any public statement on the matter. Although he has talked about the need for national champions and his belief in the big-is- necessary creed, he has yet to make it an established Heseltine doctrine for mergers.

In practice, however, it is plain that things have changed radically since the days of his predecessor. About the only substantial merger involving establishment of a powerful market position he has so far baulked at is the Lloyds Bank bid for Midland, buthe was then only a couple of months into the job. There was also a very powerful political lobby against it. He has since swung heavily the other way; unless there is over-riding reason to block a bid, he lets it through.

There is precious little evidence that Mr Heseltine is in fact right in his big-is-beautiful view; big companies already account for a far higher proportion of GDP in Britain than they do in economically more successful countries such as Germany. Here, it is the small- to medium- sized sector which has provided the prosperity.

But let's assume he is right and allowing businessmen to establish more powerful domestic market positions through acquisition is at least a reasonable thing. It might, for a start, be nice if he told us about it. Like all policies introduced by stealth, there is a danger of the process becoming corrupted and arbitrary, of policy being determined by whim or favour. If it doesn't actually become that, it will certainly over time be perceived as such.

One reason there hasn't been a more powerful protest against the S&N deal from other big brewers is that they too would like to buy themselves into a similar position. What is Mr Heseltine going to do if Bass, the present market leader, attempts something similar? Is he going to clear that one, too? Would Whitbread be allowed to take over Carlsberg-Tetley? Are we now in a position where 30 per cent plus market shares are perfectly acceptable in any industry? Or is this just a special case? There is an urgent need for new guidelines in this area that go beyond the airy-fairy encouragement for national champions we've had so far.

Airline mandate may not get off the ground

The instinctive political reaction to pleas from the European Commission for greater powers is to make polite excuses and mutter about the Common Agricultural policy. When the commissioner after those additional powers is Neil Kinnock, a fine man but as yet untested as transport commissioner in a real Euro-battle, scepticism is reinforced.

Mr Kinnock is in Luxembourg attempting to persuade national transport ministers that he should have a mandate to negotiate a comprehensive airline deal with the US. He has already been supported in this endeavour by his fellow commissioners, who are not known for being backward in supporting an extension of their colleagues' powers.

Mr Kinnock's argument is that where airline rights are concerned, the US is expert at picking off member countries one by one in bilateral negotiations. There is clear evidence this is already happening.

It was no coincidence that last month, just ahead of the transport ministers' meeting, an 18-month blockage in negotiations between the US and the UK was broken, and what came to be known as a "mini-deal" was agreed. Each side gave minor concessions on access to the other's skies, but it was trumpeted as a forerunner to a much wider Anglo-US liberalisation. In recent months, there has also been rapid movement on bilateral negotiations between the US and half a dozen of the smaller EU members.

Mr Kinnock's argument is that this is damaging in two ways - it will allow the US to take advantage of a promised liberalisation of European internal aviation markets, because the US will already have negotiated access rights bilaterally with most members. Worst of all, a divide-and- rule policy prevents Europe pushing the kind of hard bargain it could if negotiations were conducted centrally. For example, why should the US ban foreign stakes of more than 25 per cent in its airlines when Europe allows 49 per cent? Mr Kinnock would like a level playing field.

Mr Kinnock may be biting off more than he can chew, however. The UK is firmly against giving him the mandate. It suspects that it will take ages to agree a common European policy. It sees bilateral deals as essential to looking after the interests of a country that has a world-class carrier like British Airways.

Given that there are so many other bilateral deals under way, political support for the mandate seems weak at best. The main question, if the transport ministers prove intransigent, is whether Mr Kinnock will carry out his threat of taking Britain and the rest to court over their bilateral deals. That is one thing he can do off his own bat.

Cadbury criteria only part of WPP pay deal

It is a little rich of WPP to claim that the feather-bedded incentive package it has designed to enrich its chief executive, Martin Sorrell, conforms to the principles of the Cadbury committee on corporate governance. There is no doubt that some elements of it do. Shareholders are being allowed to vote on it for a start; that's progress of sorts. It is also pegged to externally determined targets and peer groups, not artificially generated internal ones. But that is about where it stops. The Cadbury recommendations on executive pay placed equal emphasis on risk and reward. Senior executives were meant to earn more when their companies did well; less when their companies performed poorly. Did Mr Sorrell share in the pain he helped create for shareholders in the late 1980s and early 1990s? He did not. Nor does he lose much if he fails to perform in future. Relate pay to performance by all means, but pounds 35m is clearly over the top. Institutional investors should push for a package that better reflects WPP's past woes as well as its perhaps brighter future.

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