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OPINION

No competition

No competition
February 24, 2017
No competition

If Kraft is still interested, M&A rules mean it will now have to wait six months before returning to the negotiating table. That respite will also be welcome news to the Competition & Markets Authority, which would undoubtedly have needed review the deal; its capacity is already stretched by the flurry of takeovers crossing the market at the moment (with Tesco/Booker, Heineken/Punch topping the list), as well as ongoing market investigations that form part of its remit. The body doubled the number of new competition investigations it opened in 2016.

This, some suggest, is a response to criticism that it has often proved a rather toothless organisation. Its recently published reports into the UK's energy and retail banking markets, two years in the making, was not a good start; critics suggest its findings were hardly novel and have not gone far enough in redressing the balance between provider and consumer, or making it easier for alternative providers to establish themselves.

The same can be said for its approach to merger regulation; large deals seem to be waved through with regularity and there seems to be little distinction in the way it treats large companies with genuine market strangleholds to smaller players just trying to survive. Bosses as Britvic and AG Barr were openly hostile towards the CMA's predecessor, the Office of Fair Trading, for scuppering a proposed tie-up in 2013, which they argued was needed to battle the might of Coca-Cola. BT's takeover of mobile operator EE, meanwhile, has since been waved through despite industry concerns it will create a giant that can dominate household telecoms spending - and the key to that strength, infrastructure business Openreach, remains firmly in its clutches despite pressure from regulators.

Of course, such pricing power is an attractive quality for investors, and we've often encouraged our readers to seek such companies out. But there is a line, and the government's apparent belief in stepping in where it sees abuses of corporate power is surely emboldening the CMA's scalp-hunting. I would be wary, for example, of owning BT shares for fear that the Openreach battle may escalate and substantially weaken the telco. And probes into smaller companies and industries - such as a recent announcement of a review of anti-competitive practices in the funfair sector - point to a regulator keen to prove nothing escapes its gaze, and one with more time on its hands now that its banking and energy reviews are - temporarily I suspect - complete.

With that in mind, investors may increasingly need to look for the right kind of pricing power - where it is won through the provision of genuinely desirable - and irreplaceable - products and services rather than the brute force approach of market consolidation.