OFT crosses swords with Labour

The Director General of Fair Trading, John Bridgeman, set himself on a collision course with Labour yesterday by rejecting one of the key changes the party would make to competition policy once in power.

Labour has said it would overhaul the way mergers are vetted so that bidders have to prove that hostile takeovers are in the public interest. At present, they have to be shown to be against the public interest in order to be blocked - a much more onerous test.

But Mr Bridgeman, publishing his first annual report since taking over the post last November, made clear his opposition to the Labour proposal saying: "I suspect it might inhibit healthy merger activity."

In particular Mr Bridgeman said that it could present obstacles to takeovers involving firms in unrelated businesses where there were no competition issues at stake but bidders still had to demonstrate benefits arising from a takeover.

Mr Bridegman also fired a warning shot over changes in merger law introduced by the current government.

Under the Deregulation and Contracting Out Act 1994, Ian Lang, the Secretary of State for Trade and Industry, can allow takeovers to go ahead without a reference to the Monopolies and Mergers Commission solely on the basis of "behavioural undertakings" by bidders not to engage in anti-competitive activities.

However, Mr Bridgeman said that allowing mergers through on this basis needed to be approahed with "considerable caution". He added: "The right remedy for problems which may arise, essentially from the undesirable effect of a merger on the structure of the market would normally itself be structural: generally divestment is the preferred remedy."

The annual report shows that last year was one of the busiest on record with 473 mergers involving assets of pounds 178bn examined - the second-highest number in the OFT's history and a 24 per cent jump on 1994.

There was also a big increase in the number of firms seeking confidential guidance before launching bids to 107 from 76 the year before.

Mr Brigdeman said he did not expect the wave of bus company bids, the biggest single category of merger inquiries last year, to continue and he also forecast a decline in electricity bids.

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