S&N gets amber light

Pubs and brewing: More consolidation on the way as DTI moves to clear Courage bid while Bass strengthens food business

The path leading to the creation of Britain's biggest brewer was virtually cleared yesterday, when the Department of Trade and Industry signalled that it would allow Scottish & Newcastle's pounds 425m takeover of Courage to proceed - subject to the implementation of three conditions.

The conditions are that S&N sells 115 tied pubs, alters its beer supply agreement with the Inntrepreneur pub chain - which is half owned by Courage - and does not increase the size of its tied pub estate without the agreement of the Office of Fair Trading.

S&N's aspirations to leapfrog Bass, the industry leader which commands around 22 per cent of the beer market, came close to falling at the first hurdle.

The OFT had originally recommended that the bid should be referred to the Monopolies and Mergers Commission, but it is Ian Lang, President of the Board of Trade, who has the ultimate say on whether bids should be referred.

The OFT said that the merger of S&N and Courage - which would have a combined market share of 25 per cent - would "give rise to a significant concentration in the brewing industry with no compensating reduction in vertical links".

As revealed in the Independent, the DTI then asked the OFT two weeks ago to explore ways of resolving the competition issues to avoid bogging the bid down for months at the MMC.

Following discussions with both companies, the OFT now recommends that Jonathan Evans, the Competition and Consumer Affairs Minister, should try to resolve the competition issues by seeking S&N's agreement to three undertakings:

o the company should reduce its tied pub estate by 115 outlets to 2,624 within a year of completing the merger;

o any subsequent increase in the estate above that figure would require consent of the Director General of Fair Trading;

o 1,000 of the 4,350 Inntrepreneur pubs (jointly owned by Courage and Grand Metropolitan) should be released from the Courage tie.

Under the current terms of the tie, all Inntrepreneur pubs have to buy beer from Courage until March 1998. The timetable for release is 500 pubs by next January and the rest a year later.

Mr Evans said he thought the undertakings were enough to remedy the competition concerns. A final decision on whether to refer the bid will be taken once the views of third parties had been taken into account.

Brian Stewart, the chief executive of S&N, said that "on balance, the fundamentals of our case have been accepted. We think the Government has been consistent with policies elsewhere in the industry." S&N's shares rose 5p to 596p.

Other brewers still think that S&N is getting off lightly and will probably make further protests to the competition authorities.

Whitbread, the UK's fourth largest brewer, said the company's decision had not changed since Sir Michael Angus, the chairman, called for a monopolies investigation at the company's recent annual meeting.

Anthony Fuller, chairman of the London brewer Fuller, Smith & Turner said the undertakings sounded "extremely cosmetic."

He said that early release of the Inntrepreneur pubs from their tie would not make any difference - but he was not against the merger because he believed that it would yield benefits for the rest of the industry.

"We see this as an opportunity to solve the industry's over-capacity problem, and it will stop a lot of the price cutting," he said.

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