Ian Lang, President of the Board of Trade, yesterday cleared North West Water's pounds 1.83bn agreed bid for Norweb, after overruling John Bridgeman, the new director general of Fair Trading.
Mr Bridgeman wanted the deal referred to the Monopolies and Mergers Commission, contrary to the views of the water and electricity regulators. One of the grounds for a reference put forward by Mr Bridgeman, suffering his first setback after only a month in the job, was that he was concerned about managerial efficiency in the new organisation.
Mr Lang said: "I have carefully considered the director general's concern about managerial efficiency, but I do not accept this as a reason for referring the merger."
Margaret Beckett, Labour's trade and industry spokeswoman, attacked the decision and said: "It is time to see the Department of Trade and Industry standing up for the consumer. This merger raises very serious issues of principle."
The OFT refused to give any detail about its managerial concerns over the North West Water bid. Neither would it say whether it was referring to the risk that the management could not cope with the new organisational structure after the merger, the first between a water and electricity utility.
DTI sources said the OFT's concern arose because this was the first multi- utility merger, which it saw as an "unknown beast". Top of the list of promises given to Mr Lang by North West Water as a condition of clearance is that it will ensure there are sufficient resources to allow the regulated water and electricity businesses to fulfil their statutory functions.
Mr Lang's decision clears the last obstacle to the takeover by North West, chaired by Sir Desmond Pitcher, which yesterday had 45 per cent of Norweb, four days ahead of the closing date on Monday.
Mr Lang's decision to overrule his new director general was also based on his concern about the problems of regulating the combined water and electricity utility, and the possible barriers it would build to entry by other companies.
The announcement will reinforce the City view that the remaining two electricity bids awaiting clearance - PowerGen for Midlands Electricity and National Power for Southern - will be waved through.
Professor Stephen Littlechild, head of Ofwat, and Ian Byatt, his opposite number at water, opposed a reference on regulatory and competition grounds. They told Mr Lang the problems could be tackled through licence amendments. North West Water has given assurances to satisfy these concerns - which are the subject of agreements with the regulators.
The assurances include ring-fencing of the regulated businesses, a proper flow of information to the regulators and a promise that there will be sufficient financial and managerial resources allocated to them so they can carry out their statutory obligations.
North West Water has agreed that charges made to the individual electricity and water concerns by a proposed joint billing and services company will be checked - by market testing - against the going rate for such services elsewhere. This is among conditions to be reflected in licence amendments.
The approval marks a continuation of Mr Lang's policy of allowing open season on electricity takeovers. However, he reiterated his statement in August - when he cleared the takeover by Southern Group of the US of Sweb, Hanson of Eastern, and Scottish Power of Manweb - that bids would be considered case by case.
The rebuff for Mr Bridgeman is the first to the OFT since February when Michael Heseltine ignored the advice of the then director general, Sir Bryan Carsberg, to refer the Hasbro takeover of Waddington.
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