OFT to call for referral of Bass bid for Tetley

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The Office of Fair Trading is to recommend that the Government refers the proposed takeover of Carlsberg-Tetley by Bass to the Monopolies and Mergers Commission.

Senior officials at the OFT are applying the finishing touches to a report that will call for a full MMC investigation, and will probably pass their recommendation to the Department of Trade and Industry of its views in the next fortnight.

The pounds 200m merger would create a business with 38 per cent of the beer market and more than 4,000 pubs, making it by far the country's biggest brewer ahead of Scottish & Newcastle.

Representatives from Allied Domecq, half-owner of Carlsberg-Tetley, are understood to have been called to a meeting with officials at the OFT in the last week, at which they were told privately that the bid should be referred. A similar meeting to the same effect has apparently been held with Bass representatives.

Moreover, a source said yesterday that the OFT might even bring forward the meeting of the Mergers Panel - which comprises other Whitehall departments - at which John Bridgeman, Director of Fair Trading, will finally make up his mind and subsequently inform the DTI about the OFT's views.

The OFT's insistence on the deal being referred will surprise City analysts, many of whom firmly believe that the takeover will be nodded through with a few minor undertakings - such as the sale of some pubs, or the putting out to tender of some beer supply contracts.

Shares in Bass have recovered strongly over the last few weeks following the inevitable fall-out that occurred when the bid was announced.

Some observers believe that the OFT is still smarting from the DTI's clearance of last year's takeover of Courage that propelled Scottish & Newcastle Breweries into pole position in UK brewing with a 30 per cent- plus share of the market. Additionally, the OFT is understood to be keen to take stock of events in the industry since the implementation of the Beer Orders in 1992 and particularly the potential consequences of Bass's dominant market share were it allowed to buy Carlsberg-Tetley.

One leading analyst said yesterday: "Consolidation was the logical conclusion of the Beer Orders, and it makes significant sense for the OFT to refer the biggest deal that there will be."

Not only is the OFT concerned about the competitive issues but it is, unusually, questioning the commercial logic of the Bass deal to buy Carlsberg- Tetley. This marks a radical change by the OFT in reviewing mergers. Told about this shift, one industry observer said yesterday: "From now on we will never know where we are with the competition authorities."

The OFT's investigation since the bid was formally announced in August has been unusually widespread - canvassing the views of every party from the big brewers to small beer clubs in towns. "Everyone that is conceivably involved in the industry has been consulted. If the OFT thinks that a deal is OK, then there will be minimal consultation," a source said.

While Mr Bridgeman has, according to sources, yet to see the full report from senior OFT officials about the Bass deal, he is more than aware that the DTI, both under the successive control of Michael Heseltine and Ian Lang, has ridden roughshod over the competition authority's recommendations on numerous occasions in recent years.

Even if the DTI does not refer the bid, then the OFT can still push its case by calling for an investigation into the whole brewing and pubs industry.

This has happened with the travel industry twice since the OFT pitched for, but was denied an investigation into the planned takeover by Airtours for Owners Abroad a couple of years ago. Recent reports suggest that the OFT has secured agreement from tour operators - mainly over the way they operate their travel agencies - that will allow them to escape an MMC reference.