IT IS QUITE extraordinary that a merger deal that everyone thought was done and dusted can be unstitched by the EU competition regulators.
It is extraordinarily bad for Sony and BMG, the two that became one in 2004 and which will now become two again unless the decision is overturned.
It would be bad enough for the companies if all they had to do was retrace their steps. As it happens, the BMG/Sony merger process has created frictions not widely expected when the deal was signed. It will be especially galling to accept that this unforeseen extra effort was in vain.
There is a chance that Sony and BMG may appeal and win permission to stay together. The merger protagonists can also adjust the structure of the amalgamation and reapply for clearance in the hope that the changes will deliver a more favourable outcome.
But even if the merger does go through in some shape or form, it will show scars created by yesterday’s wounding ruling. Time is money, after all, and at the very least yesterday’s ruling will be costly in terms of time. It may result in the loss of a significant business opportunity too. Duplicated overhead operating costs may remain duplicated.
The court decision is pretty bad for the management of EMI and Warner, too. It may not put the kibosh on their hopes to join forces entirely. But the odds that the deal will be deemed permissible by the EU competition authorities have lengthened considerably.
It will inevitably lead to hesitation. Even if EMI pursues its ambitions to buy Warner, and Warner continues with its counter bids, the level of the offers are likely to decline in reflection of the heightened doubts. So shareholders looking for a quick turn on shares in EMI have disappointment to contain. Warner is less likely to buy EMI, and likely to pay a less generous price if it does. Meanwhile the benefits of cost savings won if EMI had been able to buy Warner may now go begging.
Yesterday’s news is hardly much good for the reputation of the EU competition authorities either. At least not among companies that find themselves in anything like a similar position to Sony BMG’s. Any enterprise currently entertaining merger ideas that need EU clearance will also be wondering where they stand, and wondering about the EU.
It is not all bad, however. Given the hassle it has created for Sony and BMG, and itself, the temptation to swallow its objections must have been great. But while pragmatism is often preferable, purism must be excused this time.
No risks should be taken with competitiveness and it is better to err on the side of diversity. No risks should be taken with the quality, quantity or price of any product or service. Where diversity of competition can be protected by blocking mergers, the authorities have an obligation to act.
Consumers of music should be happier if they know that recording artists have a good variety of publishing options. Robust competition may enhance the quality of shareholder earnings in the unconsolidated companies, too.
Yesterday’s decision from the EU is quite extraordinary. But in the final analysis it may be quite extraordinarily good.
Good choice
HAVING turned to the shadow Monetary Policy Committee that sits under the auspices of this newspaper before, it is pleasing to see Gordon Brown hire from our esteemed team a second time. Perhaps it is only natural that the place of Richard Lambert, who served with The Times’ MPC before the Bank’s, is succeeded by our own Andrew Sentance.
Mr Sentance’s broader background as a highly experienced business economist at both BA and the CBI, with deep experience of industry and the real economy, makes him well-fitted to serve at the Bank.
The credentials of Tim Besley, yesterday’s second MPC nominee, are less certain. Here we have a highly qualified economist, for sure. But while Professor Besley may be a very clever chap, his core expertise is not as a macroeconomist, still less as a monetary economist. The same can be said of David “Danny” Blanchflower, who was appointed to the Bank MPC earlier this year.
This may sound picky, but it is crucial. External MPC members’ job is to act as a counterweight to the five top Bank officials on the committee, including the formidable Governor, Mervyn King. A rigorous debate which exposes the key issues and dissects them requires experts who can hold their own in such company, as respected predecessors like Sushil Wadhwani and Willem Buiter once did. Professors Blanchflower and Besley have a lot to live up to.
Bad idea
ENCOURAGING entrepreneurship is all very well. But there is a fine line between doing everything to help and providing sensible assistance.
Entrepreneurial suggestions made by the CBI yesterday risk falling on the wrong side of the divide. One proposal is that capital allowance tax breaks should be granted to loss-making companies as well as profitable ones. Such a change would be warmly welcomed by anyone considering a business start-up. Established companies with big capital investment programmes would also benefit.
It is argued that the loss makers’ exclusion clause prevents slews of splendid business ideas from getting off the drawing board because many growing businesses expect, quite legitimately, to be unprofitable in early years of existence.
It is not hard to understand why the authorities demand that the tax breaks are claimable only by profitable companies. If loss makers could take advantage it would lead to many more investment ideas, but the chances are that unwise investments would be made.
The Government will hesitate from lifting the condition because the cost of the tax breaks rises. It should hesitate too, since it is under no obligation to fund recklessness. Change may also lead entrepreneurs to throw their good money after bad ideas.
Clasper lets go
THAT did not take long. It can scarcely come as a surprise that Mike Clasper has walked away from his post as chief executive of BAA after the purchase by Ferrovial. But his departure comes in remarkably short order. There is no doubt that Ferrovial has plenty of experience managing infrastructure, but Mr Clasper had a proven track record at BAA and his expertise may have provided invaluable help in the period of transition, if not for longer. Ferrovial has a substantial task proving it can do without him.
