WATCHING THE WORLD NO BACKDOOR NATIONALIZATION

With Roger Vielvoye from London Peter Lilley, Britain's secretary of state for trade and industry, last summer sounded a warning bell to the more expansionist, foreign owned, state companies operating in the U.K. Having cleared the restraining hand of the state from British industry through a program of privatization, Lilley said the U.K. government is not about to permit backdoor nationalization through major investments by companies owned or controlled by foreign governments, mainly from

Feb. 11, 1991

3 min read

Peter Lilley, Britain's secretary of state for trade and industry, last summer sounded a warning bell to the more expansionist, foreign owned, state companies operating in the U.K.

Having cleared the restraining hand of the state from British industry through a program of privatization, Lilley said the U.K. government is not about to permit backdoor nationalization through major investments by companies owned or controlled by foreign governments, mainly from continental Europe.

SCRUTINY BY MMC

It was no idle threat. Since the summer, the government ordered the powerful Monopolies and Mergers Commission (MMC) to investigate whether a series of proposed U.K. acquisitions by foreign state companies is in the public interest. These include Elf U.K. Ltd.'s $575 million purchase of Amoco Corp.'s U.K. refining and marketing assets.

The first deliberations from MMC investigations have been accepted by the government. MMC recommended that the purchase of ICI's U.K. fertilizer business by the Finnish state company Kemira be blocked. In a separate judgment, MMC ruled in favor of the acquisition by the French state owned bank, Credit Lyonnais, of a 45% interest in a finance company on the grounds that neither buyer nor seller had a significant share of the U.K. market.

However, MMC took a radically different view of the fertilizer market where Kemira and Norsk Hydro, in which the Norwegian government has a major stake, are the only two U.K. manufacturers other than ICI.

MMC apparently ignored warnings from ICI that it would be forced to cease manufacturing if the Kemira deal were blocked. MMC said Kemira's state ownership compounded the harm of reducing players in the market because Finnish government backing might enable the company to withstand market downturns and trim prices to improve its market share.

For Amoco and Ste. Nationale Elf Aquitaine, 54% owned by the French government, first glance at the MMC reports might make encouraging reading. The deal, covering Amoco's 70% stake in the 108,000 b/d Milford Haven refinery and 250 gasoline stations and distribution terminals, boosts Elf's U.K. gasoline market share to only 4.5%. That hardly gives Elf the ability to manipulate the market.

But unfortunately for the two companies, gasoline marketing is a far more sensitive sector than financial services and could lead MMC to take a more jaundiced view of the acquisition.

An adverse ruling by the MMC could force Elf and Amoco to unravel the deal, completed last August. That could involve more than just a complex bookkeeping operation because conversion of Amoco service stations to the Elf logo was almost complete when the government ordered the MMC review.

WHO'S THE BOSS?

Elf takes the reference very seriously. Group Pres. Loik Le Floch-Prigent will appear to argue Elf's case before the MMC. First inquiries by the commission have centered on the French government's influence in the Elf decision making process. Le Floch-Prigent says he will assure MMC he's the boss.

The MMC reference also raises questions about Elf's 25% stake in U.K. independent Enterprise Oil. Financial pundits no longer expect Elf to use its 25% holdings as a springboard for a controlling interest in a company that was created by the privatization of the British Gas oil assets in the North Sea.