EC delays decision on cross-channel ferry merger

P&O, the shipping to property group, is facing further delays to its planned cross-channel ferry merger with Stena of Sweden after hold-ups in gaining approval from the European Commission.

The two companies are not expecting to hear a response from Karel van Miert, the competition commissioner, until next month at the earliest. Lord Sterling, P&O's chairman, had previously hoped to clear the final regulatory hurdles by July.

The Commission wrote to the two companies in June expressing serious doubts about the link-up, which would give the two companies around 40 per cent of the market. They centred on the need to ensure the venture operated separately from their other businesses and did not receive any cross subsidies or marketing help from their parent groups.

P&O replied to the letter a month ago, giving assurances that the company would operate autonomously. Since then executives have been given no further indications of the Commission's intentions, including whether any conditions would be attached to the merger. One suggestion was that the EC was diverting most of its resources into the probe into British Airways' controversial alliance with American Airlines.

The hold-up has delayed the publication of the Monopolies & Mergers Commission report on the merger, which has been sitting on the desk of Margaret Beckett, president of the Board of Trade, since the election.

Ministers are thought to be anxious to give a similar verdict to the EC, which has been viewed as the higher competition authority in this case, while officials in Brussels are thought to have already received a copy of the MMC report. However the two companies have been mystified by the decision to delay releasing the MMC report. The competition authorities in France have already given the deal their approval.

The plans envisage saving pounds 75m a year out of a total budget of pounds 280m by taking two ships off the Dover-Calais route, out of the 14 owned by the two companies, with the loss of at least 400 jobs. The capacity cuts were a response to the start of the Channel Tunnel, which led to a savage price war with the ferries.

The new company, to be called P&O Stena Line, which would also operate on routes between Dover and Zeebrugge and Newhaven and Dieppe, would be 60 per cent owned by P&O with the rest owned by Stena.

P&O has been anxious to conclude the deal before the end of the summer tourist season. Ferry demand tends to drop sharply in October, before picking up again in the run-up to Christmas. However loadings on ferries this summer have surged by around 15 per cent as British passengers sought to take advantage of the surge in the value of the pound.