Pub sales ruled out, Bass told to drop Carlsberg-Tetley stake
SHEEL KOHLI in London
The government called a halt yesterday to the creation of what would have been Britain's largest brewing group.
In a move largely accepting an earlier report by the Monopolies and Mergers Commission, the government also called for British hotels-to-brewing group Bass to divest of its existing 50 per cent stake in its merger target, Carlsberg-Tetley.
Trade and Industry Secretary Margaret Beckett said she disagreed with the commission's view that the adverse effects of the merger could be addressed by selling 1,900 Bass pubs.
Yesterday Carlsberg began manoeuvring to enforce the order saying it would buy the 50 per cent Bass holding for GBP110 million (about HK$1.41 billion).
Mrs Beckett said she agreed with the findings of the report that the merger would act against the public interest.
'I am not persuaded that the divestment of 1,900 pubs would be an adequate counterweight to the substantial strengthening of Bass's position as a producer and wholesaler of beer,' she said.
'Bass's acquisition of Carlsberg-Tetley would represent a further substantial step in the direction of concentration in an industry which has already seen the number of national brewers with tied estates fall from six to four since 1989.' The tied system ensures that brewery companies can compel the pubs they own only to stock the beers which they produce. The decision is a blow to both Bass and Carlsberg-Tetley, whose tie-up would have leapfrogged Scottish & Newcastle, which has an estimated 29 per cent of the British beer market.
Bass, which has 23 per cent market share, has already paid around GBP200 million for the 50 per cent interest in Carlsberg-Tetley that had been owned by Allied Domecq, the drinks group.
Carlsberg was to contribute its interest, plus GBP20 million, for a 20 per cent stake in the merged business.
The markets were taken by surprise by the ruling, which is the toughest since the Labour Government came to power.
The consensus view before the announcement was that the government would approve the merger, but impose tough conditions.
Mrs Beckett said the merged company would be the primary distributor of beer in Britain for five of the 10 top-selling beer brands.
'This portfolio would place it in a strong position to exert continuing influence over the purchasing decisions of retail outlets, even if the company's tied estate were to be substantially reduced,' she said.
Analysts estimated that the net cash loss of the decision amounted to GBP60 million.
Yesterday Carlsberg shares plunged on the Copenhagen stock exchange.
Bass shares rose strongly, before settling up 12 pence to GBP7.47.
Analysts said the rise represented a sigh of relief, as many investors believed that a link-up with the poorer-performing Carlsberg-Tetley might impair Bass's overall performance.
The decision also rules out a spate of redundancies in both companies, which had been expected to run to 2,500 jobs.