Permission - subject to conditions - was granted by the Monopolies and Mergers Commission despite its finding that the deal works against the public interest.
The MMC ruled: 'Competition for the supply of beer, particularly lager . . . would be reduced.'
However, it has allowed the deal to proceed to encourage competition among beer producers.
Allied's leading brand is Tetley bitter beer; it also owns Skol lager and brews Castlemaine XXXX in Britain under licence. The joint venture company, Carlsberg-Tetley, will challenge the market positions of Courage and Bass.
Estimates are that Carlsberg-Tetley will command about 16 per cent of the British beer-producing market, behind Courage with 20 per cent and Bass with 23 per cent. Without the deal, Allied would control about 12 per cent of brewing, commanding similar shares of the market to those of Whitbread and Scottish & Newcastle.
In a compromise decision, the MMC has allowed the deal to proceed if Allied meets three conditions, all of which are aimed at protecting the supply of beer.
First, the new company must stand by Carlsberg's existing supply agreements and terms with regional brewers and independent wholesalers.
Second, Allied must supply beer and lager to its own estate of pubs exclusively for only five years. Allied was pressing to be allowed to sign seven-year agreements.
Third, after two years Allied must let its publicans choose from the whole market at least 50 per cent of their lager requirements.
Brewing analysts concluded that the conditions would only marginally diminish the deal's effectiveness.
Allied's share price dropped sharply when the news emerged, but the shares regained most of the initial 25p fall as the implications were assessed. They closed the day down 3p at 602p.
SG Warburg, the securities house, believes the conditions prevent Carlsberg-Tetley from supplying 120,000 barrels of beer a year, compared with its annual output of about 5 million barrels.
Allied welcomed the decision, but said it would not comment fully until it had had a chance to consider the report in detail.
The MMC conclusions were drawn on a split vote as one of the five commissioners deciding on the fate of the deal dissented. Professor Michael Beesley maintained that there are no significant public interest worries.Reuse content