Interbrew's Bass solution encounters Scots snag

Click to follow

As everyone knows, the wheels of government grind exceedingly slow, and there can be any number of reasons why an important policy decision gets clogged up in the works. Usually it's no more than bureaucratic sclerosis, but that hasn't stopped the conspiracy theorists emerging in force to explain the apparent delay in the Government's decision over whether Interbrew should be allowed to keep its Bass acquisition. The final verdict was widely expected to be announced in the last week, but silence has reigned.

Just to recap, Hugo Powell, the Belgian brewer's chief executive, has been fighting like an alley cat to keep the business ever since the Competition Commission ruled the acquisition anti-competitive and told him to get rid of it earlier this year. Eventually he managed to overturn the ruling in the courts on a technicality, and the whole thing was sent back to the Office of Fair Trading for reconsideration. According to the jungle drums, the OFT's director general, John Vickers, has accepted the case for compromise, and recommended accordingly. The decision is ultimately Patricia Hewitt's, Secretary of State for Trade and Industry, but she's being slow to make up her mind. Why?

The innocent explanation is simply that she's been on holiday and hasn't yet got round to it. The other is a darker one - that the politics of the decision have begun to weigh much more heavily than anticipated. The Office of Fair Trading has been consulting on four possible remedies, but one of these - that Interbrew be forced to dispose of Whitbread instead of Bass - was pretty much dismissed as a non starter before the consultation began. That leaves just three; sticking with the original Bass disposal proposition and the so called "Carling" and "International Brewer" solutions.

The Carling solution envisages that Interbrew is allowed to keep Bass Brewers in Scotland and Northern Ireland, but that the remainder of Bass, including the Carling brand, be disposed of. The International Brewers solution is the mirror image - that the Scottish and Northern Irish brands are sold but Interbrew keeps Carling and other predominantly English brands. Confused?

Well, not North of the Border they are not, where it is widely believed that Mr Vickers has accepted Interbrew's lobbying for the Carling solution - i.e. that Interbrew keeps the Bass assets in Scotland and Northern Ireland but is forced to sell them in England. That's a classic Westminster stitch up, say the Scots. What's unacceptable for England - a dominant brewer in terms of market share - would be unacceptable for Scotland too, and the Scottish Office won't allow the Carling solution to stand.

If any of this speculation is true, Mrs Hewitt may be forced back to the original Competition Commission ruling, which was that Interbrew is made to dispose of Bass outright. From the consumer's point of view, this was always much the best outcome anyway. All the other solutions are messy and complicated by comparison, and would still most likely result in a reduction in the number of brewing competitors left in the UK market. The Bass solution ensures otherwise. There should be no tears for Mr Powell, who only has himself to blame. It was his own naivity and hubris in believing it possible to build a monopoly position in UK brewing by acquiring both Whitbread and Bass at the same time that got him into this mess in the first place.



SHOCK, HORROR! Vodafone to launch 3G service as originally planned. Well, that wouldn't make much of a headline, would it? But it was certainly the implication of Vodafone's clarifying statement yesterday in response to a front page article in the Financial Times suggesting that the mobile phones giant would launch its 3G service at sub-standard speeds. In fact, said Vodafone, we will be launching in accordance with the internationally agreed protocol at speeds of 384 kilo bits per second (kbps) initially, rising to 2 megabits later. In outlying areas the service would operate at 64 kbps. This always was the plan, and it still is.

It's a curious thing about the City and the financial press, but their propensity to exaggerate the negative in bad times is almost as great as their failure to spot and expose the hype during the good. Virtually no-one in the City or the press warned about the massive over investment that was going on in the telecommunications industry at the time it was actually happening and might have done some good. But now that the bubble has burst, it's open season and the "why oh why" copy flows freely.

A particular object of attention is 3G. If the sheer weight of column inches devoted to predicting that A. it won't work and B. that even if it does nobody will pay for it, is any guide, then it's a pretty safe bet that it will be an outstanding success.

The speed of 3G networks will be largely determined by the density of transmission antennae. Curiously, Vodafone seems to be investing as little as it can in the necessary sites, which means that its service might indeed be quite slow in certain areas. That's got everything to do with Vodafone's own commercial view of how best to use expensively bought spectrum, and nothing to do with prospects for 3G itself. Orange's higher density transmission network will allow it to launch at speeds between 389 and 144 kbps, and the company seems to have a generally more positive view of the likely take-up for these services.

3G isn't solely about video clips for football matches and prospective dates, nor has it really got much to do with accessing the internet over the mobile phone. These are popular misconceptions. What it's really about is a vast new market in telematics. But then in the present mood of deepening despondency, who wants to know about that?



CAN THINGS really be as bad at Marconi as the share price suggests? The bull case is that this is a company with a strong product line up, a string of blue-chip customers here and in the US and sales of more than £4bn a year. Sure, the telecoms sector has slowed down sharply, but unless Armageddon is around the corner, then Marconi's new management ought to be able to stabilise the ship, generate cash and pay down debt this year. Even if things get worse before they get better, then Marconi still has £2bn of untapped credit facilities to tide it over.

The bear case is that Marconi has let the genie out of the bottle. The deterioration in its trading and financial position in the last six months has been so alarming that nothing can be taken for granted and nothing the company says taken on trust.

Crises of confidence develop their own momentum and there is a real danger in current circumstances that the intensely negative sentiment towards Marconi will prompt customers to suspend orders and creditors to chase their debts harder. In this febrile atmosphere, Marconi could easily find itself haemorrhaging cash and quite unable to bridge the gap by issuing equity. The end result would be a refinancing orchestrated by the banks in which investors would have what little is left of their equity diluted into oblivion. Not pretty. There's big upside in this stock if management can pull off the promised recovery, but it's high risk stuff.