Strategic interactions with competition authorities in the UK alcoholic beverages industry

Abstract

This central question addressed by this thesis is how and to what extent firms in a mature industry can pursue a corporate growth strategy through sequential mergers and acquisitions of competitors by influencing the outcome of competition authority enquiries to their benefit. First, by either ensuring that mergers and acquisitions are not referred to the competition authorities at all or second, if they are referred, that they transact subsequently with minimal requirement for adverse remedies. The UK alcoholic beverages industry was examined in detail over the period 1969 2006 during which time there were 40 significant mergers and acquisitions, 26 of which were proposed in the UK the remaining 14 being cross-border deals in the US and/or Europe. Each of these transactions produced a rich array of quantitative and qualitative data. Discriminant analysis, a technique that has not traditionally been used in competition policy issues was applied to this data. The findings of the discriminant analysis were then tested using two case studies that examined i. the emergence of Scottish & Newcastle, the smallest of the national brewers in 1969, as the largest UK brewer and one of the largest brewers in Europe and ii. the emergence of Diageo, formed by the merger of Grand Metropolitan and Guinness in 1997 as the dominant global spirits producer with a wide portfolio of leading brands in Scotch whisky, gin, vodka and liqueurs. Both case studies combined a descriptive analysis ofthe long tenn impact of the anti-trust enquiries that shaped the two respective segments of the industry and short term event analysis' surrounding the specific mergers that created the leading firm in each industry. The case studies suggest that these two firms did influence the competition policy process to their advantage and, moreover, that this was an essential and deliberate component oftheir corporate strategy. The analysis reveals that firms were able to maximise their chances of success in furthering their growth strategy through mergers and acquisitions by i merging with and or acquiring firms in markets where they had no previous dominant share, ii exploiting the political landscape, iii pursuing 'agreed' rather than 'hostile' bids and iv presenting 'upfront' competition remedies before or during the referral process. Collectively, the analysis reveals that over a period of 35 years the UK alcoholic beverages industry was transformed from a fragmented national industry into one that is now dominated by two firms in their respective segments of international spirits and UK brewing. The success of Scottish & Newcastle and Diageo in achieving their merger and acquisition goals depended heavily on their ability to repeatedly and successfully interact with competition authorities. At the same time their major UK competitors, Allied Domecq, Bass and Whitbread were less successful at the key stages in their history in pursuing mergers and acquisitions. This led, within a matter of years to all those firms either exiting the alcoholic beverages industry completely or being subsumed into other firms