Shift in mergers policy could scupper mega-bids

Competition: Lang's change of tack puts question mark over Bass takeover of Tetley and Sun Alliance/Royal Insurance tie-up

A series of mega-bids in industries ranging from brewing and financial services to engineering and privatised utilities could be jeopardised by the marked shift in competition policy outlined yesterday by Ian Lang, President of the Board of Trade.

Mr Lang warned that fostering domestic competition would take precedence over the creation of "national champions" in what was being seen last night as an abrupt change in tack from that of his predecesor, Michael Heseltine.

The shift in policy could scupper Bass's pounds 500m takeover of rival brewer Carlsberg Tetley - a merger that would give it 40 per cent of the beer market.

A bid for car components and aerospace group Lucas Industries from suitors such as TI or T&N could also run into trouble. Some analysts were also questioning whether the proposed pounds 6bn tie-up between insurance groups Sun Alliance and Royal Insurance would escape a referral the Monopolies and Mergers Commission.

In a speech to a utilities conference in London organised by the Adam Smith Institute, Mr Lang said: "It is not the place of competition policy to engineer the creation of so-called national champions. Of course, we all want world-class companies, but the best prospect of a company beoming a successful global competitor is the experience of a demanding, competitive market at home.

"We do companies no favours in the long run by allowing them the luxury of protection from competition at home. Far from creating world-class companies, such a policy produces third-rate companies, such as we saw pre-privatisation with British Steel, British Coal, British Leyland and countless others."

Mr Lang insisted afterwards that his speech did not mark a change in Government policy and was one that Mr Heseltine, now Deputy Prime Minister, would have been happy to deliver. "He too supported competition," Mr Lang said.

Aides added that his remarks were perfectly consistent with previous policy. "Competitiveness and competition go hand in hand. They are complementary, not contradictory," said one.

But other observers pointed to a marked contrast in style and emphasis. Mr Heseltine's stint at the Department of Trade was one marked by a much more laissez faire attitude towards consolidation within particular industries to improve UK competitiveness. He waved through GEC's bid for the nuclear submarine builder VSEL even though the Monopolies and Mergers Commission concluded it was against the public interest.

The Scottish and Newcastle takeover of Courage was also examined and largely approved during Mr Heseltine's reign, although it was only formally given the go-ahead without an MMC referral a week after Mr Lang took over at the DTI last July.

In his speech, Mr Lang warned he would resist pressures to use his powers to encourage the creation of large utility companies with the scale to compete in world markets. This was one of the reasons why be blocked takeovers by National Power and PowerGen of regionl electricity companies a fortnight ago.

But he made it clear that this was a philosophy which applied across other industries.

Bass executives, who have been preparing a bid for Carlsberg Tetley for some months now, are known to have been unsettled by Mr Lang's ruling on the generator bids.

Meanwhile the Sun Alliance-Royal Insurance merger last week was justified on the grounds that it would create a major force in the insurance industry world-wide, enabling the combined group to leapfrog up the world league to number nine.

Mr Lang also used his speech to rule out any wholesale changes in the way Britain's privatised gas, electricity, water and telecoms utilities are regulated. He rejected the BT chairman Sir Iain Vallance's call for the powers of individual regulators to be curtailed and their decisions made subject to an appeals procedure. He also dismissed the idea of abolishing individual regulators and replacing them with a "college of regulators".

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