Interbrew/Bass deal: Battle may return to home turf
So is it any wonder that Interbrew is confident its acquisition of Bass will pass through regulatory authorities relatively unscathed?
The news yesterday that UK Trade Secretary Stephen Byers has asked the EC to pass the regulatory authority for the Bass deal back to the corridors of Whitehall should act as a warning to Interbrew though.
The recent history of the beer industry in the UK is one of careful governmental scrutiny. In the early 1990s, the powers that be blocked Bass's attempt to purchase what was then Scottish Courage. Last year Whitbread ran into regulatory problems when trying to buy Allied Domecq's pub chains. And, only two days ago (August 31, 2000), the UK Office of Fair Trading (OFT) passed its findings on the controversial Beer Orders - made 10 years ago to control vertical links between brewing and retailing - to the Department of Trade and Industry (DTI) (the findings are confidential, at least until the Secretary of State announces his decision).
Analysts believe that the most likely scenario is that the decision will be passed back to the UK. The more cynical say that Brussels will do anything to lighten its workload. However, this may be a little unfair given the singular nature of the UK market.
"It is reasonably likely that it will be given back to the UK," said one analyst with a leading investment bank. "The EU might take the view that the UK is an unusual market because of the degree of vertical integration. The UK is well placed to make a decision like this as well because it has looked into the beer market in depth recently."
Sources close to Interbrew say the company expected the decision to be referred back to the UK. However, according to analysts, the worrying thing for the Belgian brewer is that it will be left far more vulnerable if the deal is blocked by the UK than if it had been by the EC.
"The way the deal is structured means the EC can stop or block the deal at any point. If the EC decides to block it, then the onus is on Interbrew and Bass retains ownership so the deal would have to be renegotiated," said one analyst.
"The separate issue is if the EC refers the decision to the UK. In this scenario, the UK can block it but Interbrew would retain ownership in the UK. As the deal is unconditional, Interbrew would have to purchase Bass Brewers and probably sell-off parts of the business."
If the deal is referred to the UK, the path is left open for Bass to pursue its hotel dreams whatever the monopoly investigation uncovers. As the analyst put it: "I imagine Bass would be very keen to have the deal referred."
Interbrew believes that its market share will only be 4% above the current market leader S&N (33% compared to 29%) there should be little trouble even with the meticulous UK authorities.
But the analyst said: "I think it is reasonably likely the Trade Department will say no unless there are brand disposals. However, I think Interbrew has thought of this and will be getting ready to make disposals. The possibilities are brands like Tennants and Worthington's."
Indeed given the size of this deal there are likely to be disposals whatever the regulatory decision, the real ales in particular look vulnerable. Furthermore, the position of Grolsch with the presence of Stella Artois as the portfolio flagship, must be questionable and all logic suggests that Heineken, Interbrew's arch European rival, will not stay within the once Whitbread portfolio.
Disposals such as these may bring Interbrew's market share down to acceptable levels without any forced rationalisation. Indeed the effect on the UK industry may not be as great as the scaremongers might have us believe.
As Andrew Jefford pointed out for us in his column last month the company have a reputation for looking after local products, indeed its self-awarded title is that of "the world's local brewer".
"There will probably be less choice for the consumer, although it will probably be good for wholesale prices" said the analyst. "However it will not change the playing field especially. The small UK brewers are already moving into niche areas the big players are not interested in."
But one playing field that will alter when Bass and Interbrew UK merge is the board room. And, an interesting side issue in the industry at present is who will help take the reigns of the new company, Bass Brewer's very own CEO Iain Napier or Whitbread's Miles Templeman - apparently there is not room for both.
The obvious money is on Napier as CEO of the bigger concern. However, those in the know are getting good odds on Templeman. Interbrew and Whitbread have a good and long relationship, Interbrew was very impressed with what Whitbread did with Stella Artois and the two companies are similar in business philosophy.
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