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Bower, Julie; Cox, Howard (2012)
Publisher: Cambridge University Press
Languages: English
Types: Article
Subjects: HD28
Firms engage in a multitude of interactions with the external environment, most critically with government and its regulatory agencies. Despite an extensive literature on “regulatory capture,” little attention has been paid to the interactions between merging fi rms and competition authorities. Yet the possibility of capture exists where there is a recurring series of merger investigations of one fi rm by the same authority. This analysis of the impact of political infl uence on the merger history of the brewing fi rm Scottish & Newcastle extends into a discussion of regulatory capture in the oversight of British brewery mergers during the 1980s and 1990s.
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    • 2 Teresa da Silva Lopes, “Brands and the Evolution of Multinationals in Alcoholic Beverages,” Business History 44 (July 2002): 1-30, ascribes “merger waves” in the alcoholic beverages industry to a combination of several factors related to the evolution of the industry and also to the strategy of the firms.
    • 3 Terry R. Gourvish and Richard G. Wilson, The British Brewing Industry 1830-1980 (Cambridge, U.K., 1994), chart the development of the Big Six national brewer-retailers through a series of mergers of family-owned regional brewers.
    • 4 Monopolies and Mergers Commission (hereafter, MMC), “Scottish & Newcastle Breweries plc and Matthew Brown plc: A Report on the Proposed Merger,” Cmnd [Command of Her Majesty] 9645 (1985): 15.
    • 5 A chronology of the key mergers of the Big Six from 1960 is shown in MMC, “Bass plc, Carlsberg A/S and Carlsberg-Tetley plc: A Report on the Merger Situation,” Cm [Command of Her Majesty] 3662 (1997): 141.
    • 6 Julie Bower, “Strategic Interactions with Competition Authorities in the U.K. Alcoholic Beverages Industry,” PhD thesis, University of Warwick, 2007.
    • 12 George J. Stigler, “The Theory of Economic Regulation,” Bell Journal of Economics and Management Science 2 (Spring 1971): 3-21, proposes as a general hypothesis that every industry with enough political power to utilize the state will seek to control entry and retard the rate of growth of new firms. Richard A. Posner, “Theories of Economic Regulation,” Bell Journal of Economics and Management Science 5 (Autumn 1974): 335-58, distinguishes the “public interest” theory as a response to the demand from the public that markets work efficiently and fairly from a second “capture” theory that is “espoused by an odd mixture of welfare state liberals, muckrakers, Marxists and free-market economists.”
    • 13 Jean-Jacques Laffont and Jean Tirole, “The Politics of Government Decision-Making: A Theory of Regulatory Capture,” Quarterly Journal of Economics 106 (Nov. 1991): 1089-127.
    • 14 David Martimort, “The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs,” Review of Economic Studies 66 (1999): 929-47, conjectures that capture is enforced through repeated interactions.
    • 15 Ernesto Dal Bó, “Regulatory Capture: A Review,” Oxford Review of Economic Policy 22, no. 2 (2006): 203-25, discusses political influence in the U.S. telecommunications industry.
    • 18Nihat Aktas, Eric de Bodt, and Richard Roll, “Is European M&A Regulation Protectionist?” Economic Journal 117 (July 2007): 1096-121.
    • 19Patrice Bougette and Stéphane Turolla, “Merger Remedies at the European Commission: A Multinomial Logit Analysis,” MPRA [Munich Personal RePEc Archive] paper 2461 (Apr. 2007).
    • 20 Geoffrey Jones and Peter Miskell, “European Integration and Corporate Restructuring: The Strategy of Unilever c.1957-c.1990,” Economic History Review 58, no. 1 (2005): 113-39.
    • 21 Lords Hansard, 14 Nov. 2005, column 904. [Hansard is the written record of U.K. Parliamentary debate, either from the House of Commons or the House of Lords].
    • 22 For example, donations from Allied-Lyons to the Conservative Party in 1991 amounted to £110,000, those of Scottish & Newcastle were £50,000 in 1997, and those of Whitbread were £15,000 in 1990. Donations ceased after those years.
    • 23 See MMC, “The Supply of Beer: A Report on the Supply of Beer for Retail Sale in the United Kingdom,” Cm 654 (1989): 111-12, for details about the members of the Brewers Society and its conduct in the inquiry. Following an intense lobbying campaign, the Brewers Society was credited with forcing the government to partially back down (“Decision on Beer Orders,” DTI [Department of Trade and Industry] Press Notice 89/745).
    • 24 Hansard, 15 Feb. 1995. In a debate on extending Sunday trading hours, Donald Anderson, Labour MP for Swansea, East made this comment: “the brewers were becoming pretty unhappy with the performance of what they deemed to be their Government, and the Government hoped to win back the support of the brewers, which, after all, had provided 10 per cent of Conservative party funds at the previous general election.”
    • 26 MMC, “Beer: A Report on the Supply of Beer,” HC [House of Commons] 216 (1969): 7, cites Mr. J. A. P. Charrington, president of Bass Charrington, in the Times, 22 Apr. 1968, in ascribing regional taste preferences that underpinned the regional nature of the U.K. brewing industry.
    • 27 Gourvish and Wilson, The British Brewing Industry.
    • 32 While many third parties were against the merger, in particular those representing interests in the Northwest, others including two Newcastle MPs held supporting views. MMC, “Scottish & Newcastle Breweries plc and Matthew Brown plc,” 56-57.
    • 33 Margaret Thatcher Foundation, Margaret Thatcher's speech to the Scottish Conservative Conference, 11 May 1984.
    • 38 Sir Alick Rankin's obituary noted that Elders IXL was “not conspicuously constrained by the finer points of British market etiquette.” Independent, 6 Aug. 1999.
    • 39 “Drinks analysts wistfully recall the heady 1980s when Allied Domecq hired Concorde for a week, and flew them all to whisky distilleries in Scotland, Canada, America and France; 'I think that marked the peak,' says one.” Telegraph, 24 June 2000.
    • 40Imperial bought Courage in 1972 as part of its strategy of diversifying away from tobacco.
    • 41“Scottish & Newcastle Breweries plc Support a Successful Company-Reject the Elders Offers,” [Scottish & Newcastle defense document] 7 Nov. 1988, 3.
    • 42The Lex Column, Financial Times, 12 May 1988, 5.
    • 43MMC, “Elders IXL Ltd. and Scottish & Newcastle Breweries plc: A Report on the Merger Situations,” Cm 654 (1989): 94.
    • 44'Parr is taking another punt on Pontin's', Daily Telegraph, 30 Mar. 2008, 2.
    • 45MMC, “The Supply of Beer” (1989): 31.
    • 50 MMC, “Elders IXL Ltd. and Grand Metropolitan plc: A Report on the Merger Situations,” Cm 1227 (1990): 11-12, gives estimates of capacity utilization for the major U.K. brewers.
    • 51 “Who Will Toast Victory in the Brewing Beer Wars,” Herald Scotland, 19 Oct. 2007.
    • 56 The acquisition gave Scottish & Newcastle two of the U.K.'s leading beer brands, Foster's and John Smith's, that collectively accounted for nearly 30 percent of Courage's volume. Foster's was the second largest lager brand in the U.K. The deal also added modern and relatively more efficient plants at Reading and Tadcaster to add to the existing brewery and then state-of-the-art canning line in Edinburgh.
    • 57 “Scottish & Newcastle plc Proposed Acquisition of the Courage Business and Rights Issue,” Listing Particulars document (1995): 8.
    • 58 “Scottish & Newcastle plc: Proposed Acquisition of the Chef & Brewer Estate and Rights Issue,” Listing Particulars document (1993): 4.
    • 59 Julie Bower attended the analyst briefing on the day of the merger announcement.
    • 60 Matthew Brown Brewery, Adjournment debate called by Mr Jack Straw, Labour MP for Blackburn, Hansard, 22 Nov. 1990.
    • 61 Bass Carlsberg Tetley would have created the U.K.'s largest brewer with 37 percent market share of beer production and a tied estate of 4,400 pubs.
    • 62 MMC, “Bass plc, Carlsberg A/S and Carlsberg-Tetley plc: A Report on the Merger Situation,” Cm 3662 (1997): 30, noted that Professor Newbery, while fully accepting the public interest findings, was not persuaded that the proposed remedy would adequately address the substantial increase in market power accruing to BCT.
    • 63 “The bid by brewery giant Whitbread for the pub and restaurant business of Allied Domecq has suffered a serious setback, after a decision by Trade Secretary Stephen Byers to refer the deal to the Competition Commission,” BBC Web site (www.news.bbc.co.uk/1/hi/ business/394496.stm), 14 July 1999.
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