Brussels gives UK the power to veto Interbrew's Bass buy

The European Commission yesterday agreed to hand back to the Department of Trade and Industry the investigation into the £2.3bn acquisition of Bass's UK brewing interests by Interbrew of Belgium.

The European Commission yesterday agreed to hand back to the Department of Trade and Industry the investigation into the £2.3bn acquisition of Bass's UK brewing interests by Interbrew of Belgium.

Interbrew, the privately held maker of Stella Artois, agreed to buy the Bass assets in June, shortly after it announced the £400m purchase of Whitbread's beer unit. The Bass sale, which was not dependent on UK regulatory approval, was formally completed yesterday. Interbrew could face massive losses if the deal is later blocked on competition grounds by the British authorities.

Together, the two acquisitions will hand the Belgian company an estimated 32 per cent slice of the UK brewing market, catapulting it to the status of the country's biggest brewer. Scottish & Newcastle, the UK number two, controls 29 per cent.

In a statement, the Commission said it agreed with the Government's view that the combined strength of Interbrew and S&N "could give rise to the risk of a harmful duopolistic outcome". The Commission added that it considered the UK to be the best place to carry out the further examination of the case because of its experience of handling investigations in the brewing sector.

The DTI is already handling a separate inquiry into the Whitbread acquisition and is considering a review by the Office of Fair Trading into the beer orders, the rules designed to limit vertical integration in the brewing industry.

The EU cleared Interbrew's acquisition of Bass's overseas beer interests and of its soft drinks supply contracts.

Stephen Byers, the Secretary of State for Trade and Industry welcomed the decision to grant the referral. He said: "We are of the clear view that the UK authorities should consider this case because the proposed merger raises competition concerns in distinct markets in the UK which warrant further investigation."

After a recommendation from the OFT, Mr Byers will decide whether to refer the case to the Competition Commission. The whole process is expected to take up to four months. Analysts said the move represented a severe blow for Interbrew; Ian Shackleton, an analyst at Donaldson, Lufkin & Jenrette, said: "The history of Government intervention in the UK brewing industry is rather a strong one. It leads one to believe that there is a regulatory gauntlet to run through."

A spokesman for Interbrew said the company was "not surprised" by the Commission's decision. He added: "Everything points in favour of a thumbs up to the deal."

Others were less optimistic. One analyst said: "The deal is unlikely to be allowed through without some conditions." These could include the imposed sale of Bass lager brands such as Tennent's or Grolsch, although Interbrew will be keen to confine any disposals to smaller ale brands such as Whitbread's Flowers. In addition, industry sources say, concerns could be raised about Interbrew's agreement to supply both Bass and Whitbread's pub estates. In the meantime, Interbrew will continue to run the Bass and Whitbread businesses separately.

Earlier in the day, there was confusion when Shandwick International, the PR company acting for Interbrew, jumped the gun and released a statement detailing the Commission's decision ahead of its announcement in Brussels. Asked how the Commission had reacted to the leak, the Interbrew spokesman said: "Let's not go into that."