Heseltine attacks EC approval of state aid for Bull

THE EUROPEAN Commission yesterday approved hefty subsidies to Groupe Bull, the troubled French computer maker. The aid for the state-owned firm is in the form of three capital injections from the French government totalling Fr6.68bn (pounds 680m).

Michael Heseltine, the President of the Board of Trade, attacked the approval and said: 'Aid of such magnitude is bound to have a seriously distorting effect on competition in this sector.'

Mr Heseltine, who intends to complain to the Commission, said it would encourage other firms to seek government support. 'We cannot allow a subsidy race like this to happen,' he said.

Investigators working for Sir Leon Brittan, the EC Competition Commissioner, yesterday closed a year-long review with the conclusion that two capital injections in 1991 and 1992, together worth Fr4bn ( pounds 409m) could not be justified on commercial grounds.

But they argued that the aid would not significantly affect competition since Bull's shares had seen neither capital growth nor dividends since 1983. The Commission officials believed that no private investor would have been willing to put up the money provided by the French state.

Bull's market share is expected to fall from 2.1 to 1.8 per cent in a market that is growing at 10 per cent a year. The capital injection would have little effect on competition, the investigators said.

The injections were part of a radical restructuring plan set in train at Bull by Francis Lorentz, the firm's chairman until 22 June. In recent years Bull has shed 9,500 jobs, or 18 per cent of its workforce, closed seven of its 13 plants and forged two important strategic alliances that analysts believe increase its chances of long-term survival.

NEC, Japan's largest computer maker, has taken a 4.7 per cent stake in the French company in an attempt to expand its presence in the European market.

More significantly, IBM has acquired 5.68 per cent of Bull's shares as part of a wider alliance in which the firms will gain access to each other's technology.

The Commission also announced yesterday that it had approved the French government's proposal to inject a further Fr2.68bn into the firm to help it to pay for essential research and development.

Sources close to the Commission added that the investigators consulted Bull's competitors before concluding that the aid would do little damage to the European computer market. However, ICL, the UK company now owned by Fujitsu of Japan, has already complained to the Commission and the Department of Trade and Industry over the aid. A spokesman for ICL said: 'This sort of aid distorts competition and encourages other underperforming companies to seek state intervention.'

ICL is one of the few European computer companies to have stayed in profit during the present downturn in the industry.

Mr Heseltine said that all European competitors of Bull, including ICL, had faced the need to respond to changes in the marketplace through radical restructuring and investment in research and development.

He added: 'They have funded this largely out of their own resources, but now face the prospect of a major competitor being funded by its government to undertake the same tasks.'

The Confederation of British Industry attacked the Government for lack of 'positive support' for the manufacturing sector on the eve of Mr Heseltine's announcement on reorganisation at the DTI.

The CBI called for more export support, cheaper electricity for large users and investment allowances for technology and pollution control.