Comment: Don't bet on Labour spoiling the City's party
`If some weakened form of public interest test does reach the statute book, the likeliest effect will be to create a new breed of merger and acquisition specialists'
Saturday 20 April 1996
But would Labour actually call a halt to the takeover free-for-all? Listening to some of the rhetoric, it is easy to believe it would; on the face of it, the stakeholding ideal is incompatible with the wheeler-dealer, casino- like ways of the City. Last summer's economic policy document renewed the party's commitment to investigate whether to shift the burden of proof in takeovers to show they are in the public interest.
The position under present competition law is that a bidder has to demonstrate the converse, that the proposal is not against the public interest.The test used is whether competition is decreased or not. Obviously, a public interest test could work several ways. If the proof of public interest were made rigorous enough by demanding cast-iron evidence that a deal is good for the economy and all "stakeholders," then merger activity would indeed be brought to a halt.
A softer version of a public interest test would be to ask a bidder to demonstrate a positive economic benefit from a merger, while continuing in parallel to apply the existing test of whether there is any damage to competition. Under such a system, anti-competitive mergers would continue to be thrown out in the conventional way. The main impact of a public interest test based on economic benefits would probably be to deter marginal deals where cost savings or improvements in service are difficult to prove.
The biggest problem with a public interest test, even a watered down one, is the difficulty of drafting it in a way that will work in practice, once the clever minds of competition lawyers get to grips with it. This explains why so little has been said by Labour to elaborate last summer's statement, though we should know more when the final version appears in June.
It seems unlikely that Labour will drop the public interest test altogether. However, it could well be overshadowed by a reassertion of the importance of competition as a criterion for judging takeovers. This would be consistent with all the tough free-market talk we have been hearing recently from front-bench spokesmen as well as bringing policy into line with Europe. Indeed, at a private meeting with City and industry representatives this week, Peter Mandelson, eminence gris to Tony Blair, went so far as to say that with adequate regulation it didn't matter if National Power was acquired by foreigners. It seems hard to believe that even New Labour would in practice adopt such a Heseltinian approach, but perhaps the takeover industry doesn't have as much to fear from Labour as it believes.
If some weakened form of public interest test does reach the statute book, the likeliest effect will be to create a new breed of mergers and acquisitions specialists skilled at drafting public interest statements that whizz their deals painlessly past the authorities. A continuation of the takeover boom under New Labour is by no means out of the question.
Congratulations in order as G7 meets
Finance ministers from the Group of Seven industrial countries meet in Washington this weekend for one of their regular pow-wows on the world economy. The smoke signals tell us there will be a mood of self-congratulation in the wig-wam this time.
After all, the dollar has done what it was supposed to after last April's G7 decision to reverse its fall against the yen. The Japanese economy has started to recover. Mexico has been thoroughly sorted out. The Russians have toed the line on economic policy to get their $10bn loan from the IMF. Germany was starting to look worrying but the Bundesbank took decisive action in time for the G7 meeting. With so little to discuss, finance ministers are actually going to be able to find time to think about helping the world's poor, pushing forward with plans for debt relief.
It is an old truism, however, that if everything appears to be going well, there must be a disaster looming. There are several potential candidates.
One is the oil price. The standard argument about its recent rise to five-year highs is that this is the short-lived result of a harsh winter. However, it is easy to imagine a combination of circumstances - Middle East war, strong Asian demand, a colder than normal summer in the northern hemisphere, a pipeline catastrophe in Russia - that would send the oil price soaring.
Even without an oil shock there are some nascent inflationary dangers. The US economy seems to be gaining strength rapidly after its pause, and the UK could follow. Food price inflation has already risen, and consumer goods prices show signs of following suit. In Britain the housing market is picking up and credit growth is rapid.
On the other hand, there is a risk of recession in Germany, whose economic problems might be too deep-seated for this week's interest rate cut to have much impact. Tackling over-regulation and high labour costs would make it vulnerable to the sort of slump Britain experienced in the early 1980s.
Still, perhaps finance ministers should be allowed to pat themselves on the back for the past year's successes. They are rare enough in economic management.
Why Southern bid is likely to be cleared
Southern Company of the US must have been relieved to hear that Nigel Hawkins, Yamaichi's likeable and much quoted utilities analyst, thinks Southern's bid for National Power is "a bridge too far" and will as a consequence end up before the Monopolies and Mergers Commission. There is nothing wrong with Mr Hawkins' logic, but his forecasting record in this area suggests the exact opposite is likely to occur. When Trafalgar House started the takeover scramble for Britain's electricity companies with a bid for Northern Electric, Mr Hawkins thought it certain to be referred. It was not. He believed Scottish Power's bid for Manweb would go to the MMC on the grounds it involved integration of a generator with a distributor. It did not. Mr Hawkins sealed his reputation as a thoroughly reliable contrary indicator of mergers policy by then predicting that National Power's bid for Southern Electric of the UK, and PowerGen's bid for Midlands, would be cleared. Not a bad guess but, lamentably, wrong again. They were referred. All of which presumably means that the American bid for National Power will be cleared. It's a funny old world.
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