To Stem The Rising Competition

Both were under pressure from their shareholders to find an answer to the fierce price-cutting war, while Lord Sterling was facing more wide-ranging criticism of his stewardship of P&O.

The UK company was perceived as running out of steam and needing to get a grip on its disparate businesses. The deal with Stena, if it is approved by competition authorities in London and Brussels, represents the third big step to resolving P&O's problems. The first was the announcement in March that P&O will float its Bovis Homes subsidiary in 1997; the second was the merger in September of P&O's container business with that of Nedlloyd of Rotterdam.

 

The latest move was given a positive welcome by the markets. The decision to push ahead with a ferries merger was taken the day after the Nedlloyd announcement when Lord Sterling and Dan Sten Ollson, Stena's chairman, were having dinner overlooking the Gothenburg waterfront.

Senior executives of the companies have spent the past three weeks putting the deal together. It was no secret that P&O and Stena had been discussing links following the decision by the UK trade department in July to free the two companies from agreements that they would not pool their ships or merge. But what did surprise observers was the speed with which the deal was completed.

It was, however, a coincidence that the merger announcement came a day after Eurotunnel revealed it had reached an outline agreement with its bankers over a refinancing package. But there were powerful constraints on the time available to negotiators.

They needed the new arrangements to be in place in time for the start of the spring sailing season; they had to give the regulators time to review their plans; and they had to get the UK review process under way before the general election which must be held by May.

If Labour wins it is likely to initiate a review of competition policy, delaying merger approvals. As it is, it will take several months for all regulatory hurdles to be cleared.

The OFT has seven weeks to decide whether to refer the deal to the Monopolies & Mergers Commission which, if appropriate, would take a further two to three months to carry out a review.

Scrutiny by the European Commission would be carried out in parallel. P&O does not expect problems with the freight side of the merger because this is a market where there will still be a wide choice and tough competition. But there is