The Secretary of State for Trade and Industry ignored the advice of John Bridgeman, director general of Fair Trading, that the deal be referred to the Competition Commission and instead asked him to seek undertakings from BAe to overcome competition and public interest concerns. Defending his move, Mr Byers said the merger would strengthen the UK's defence industry, create a strong prime contractor able to compete internationally, and offered the potential for savings in defence procurement.
Mr Byers said he had considered the case for a referral but decided the concerns raisedcould be met through undertakings. "While the undertakings would inevitably be complex,they offer the prospect of a speedier resolution of the issues than would have been provided by a Competition Commission investigation," he said.
The OFT has been given five months to secure the undertakings from BAe, which are designed to maintain competition when large defence contracts are put out to tender. To offset the reduction in competition for naval and avionics contracts, Marconi's warship yards, VSEL, Yarrow and Govan, and its avionics business will have to be put into separate subsidiaries and made available to all prime contractors on even terms.
BAe will also have to safeguard competition for sub-contracts by putting them out to tender to third parties on a fair and impartial basis. Thirdly, the merged company will have to erect "firewalls" where rival BAe and Marconi teams are bidding on major defence projects such as the Joint Strike Fighter and Tracer, an armoured vehicle being developed for UK and US armies.
The merger has caused concern in Europe, where Germany and France attacked the "all British" solution to defence consolidation. The US also voiced fears that the deal would reduce the number of bidders US defence firms could partner on big procurement projects.
BAe and GEC welcomed the decision, saying they were confident the undertakings could be agreed in time for the deal to be completed this calendar year. The merger will create the world's third biggest defence contractor with sales of pounds 13bn and an order book of pounds 33bn.
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