Interbrew has only "50% chance" of regulatory approval for Bass deal

Interbrew's chances of success in the Bass Brewers deal may be wrecked by nervous monopoly authorities. Chris Brook-Carter reports on the chances of success and whether the final decision will come from the corridors of Whitehall or Brussels.

The Bass/Interbrew deal for the UK company's brewing arm has only a 50/50 chance of getting regulatory approval from the competition authorities, analysts have told just-drinks.

Any sale of Bass' brewing arm to Interbrew would give the Belgian company a 34% share of the UK beer market, which is likely to raise monopoly concerns. "Interbrew could divest secondary brands, which would reduce market share modestly - perhaps to a level the authorities would accept," said an analyst with a leading investment bank.

"I'd say that the chances of getting approval are 50/50 at the moment. It would be nice to think they would let it through. However, it has never really been explained why the Office of Fair Trading (OFT) blocked the Whitbread bid for Allied Domecq's pub chains, they are being quite aggressive at the moment."

However, while speculation concerns the UK's OFT, just-drinks has learnt that the EC's monopolies board could take control of the investigation.

An EC spokesperson said: "Only the companies know for sure who will be responsible for reviewing this deal. But the EC is responsible whenever there is a merger or acquisition involving companies with a worldwide combined turnover of Euro5bn or more as well as having a turnover in Europe of Euro250m each."

The spokesman commented that it would be inappropriate to say whether a Bass/Interbrew deal would be referred to investigation. However she said: "What we look at when the EC makes reviews is very simple. The EC must prevent the creation or strengthening of dominant positions in any product or geographic market."

"So in the drinks sector typically the EC looks at what is the relevant products market," the spokesperson continued. "To be able to apply the dominance test you must carry an investigation of what is the relevant product market and then see whether there is a danger that the deal can create a dominant position in any of the product markets concerned."

The position of the OFT will still be relevant, however, as the EC will probably look to past cases, such as the collapse of the Whitbread/Allied deal and the blocked Bass/Carlsberg-Tetley merger of the mid-90s, for reference.

One analyst said: "In their [Interbrew and Bass] favour is that no pubs are involved in the deal, so the authorities might be more lenient when there is this lack of vertical integration."

However, there are fears that the large number of supply-agreements with UK pub chains that Interbrew would control, if it owned Whitbread and Bass' brewing divisions, might count against them.

The analyst believed that Bass wants an unconditional exit from brewing, which may jeopardise a sale to the Belgian firm if Interbrew cannot deliver on these terms.

Any Interbrew/Bass deal affected by EC proceedings, gives the companies only a week to notify the Commission's competition department. From the moment the Commission has been notified it has one month to give its blessing or start an in-depth investigation if it is concerned about the creation of a dominant position. An in depth investigation takes a further four months.

Chris Brook-Carter