Business Comment: Politicians should not get more power to meddle

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The Independent Online
While it was in opposition, Labour was on the whole against the free-wheeling, deal-hungry ways of the City. Merger mania, it believed, was damaging employment and investment in the British economy. It therefore devised a plan to block hostile takeovers by reversing the burden of proof so that bidders would have to demonstrate that a takeover was in the public interest.

But that was Old Labour and this is New. Now that it has the burden of office to carry on its shoulders, Labour looks to be less keen on the idea. There was no mention yesterday of such a measure being in the Competition Bill when it is published this autumn. If it is slipped in between now and then, the Queen might have a case to answer under the Trade Descriptions Act.

Nevertheless, the concept is clearly still knocking around and commands some support - not least from the President of the Board of Trade, Margaret Beckett, who first proposed it. Just in case she should be tempted to dust it down at a later stage, here are a few reasons why it would be an extremely dangerous measure.

First, and most objectionably, it would remove the ability of shareholders to decide whether their company was performing satisfactorily and conversely give far too much power and discretion to politicians and regulators. Freeing managers from the threat of unwanted takeover also frees them from the incentive to maximise shareholder return.

Blocking a takeover on the basis of whether it is against the public interest - the present test - is not perfect but at least it is objectively based and, rightly, designed to catch those mergers which reduce competition.

Allowing a Secretary of State to decide the point at which a takeover actively promotes the public interest would give politicians carte blanche to meddle in the markets. Already they have too much discretion in determing competition policy. Few would want them to get more.

Second, the implication that only hostile mergers operate against the public interest is a fallacy. A merger is just as likely to be motivated by the self-interest of the two parties if it is agreed. Indeed, if anything, it is more likely to be a conspiracy against the public in these circumstances. If the burden of proof were reversed only for hostiles it would not in itself stop the agreed merger between Guinness and GrandMet. Just because Tony Greener and George Bull think it a good idea to get together does not automatically mean GMG Brands is in the public interest.

Third, such a measure would in any case miss the largest and most contentious mergers where there is greatest scope for abuse of the public interest, since these would still pass automatically to Brussels for examination.

Lord Borrie is reviewing competition policy for Mrs Beckett at the moment and may recommend that the public interest test needs modification. By all means widen it to include issues other than pure competition concerns. But do not reverse it. That would be a disaster for Britain's competitiveness.