Leap of faith for merger reforms

Mike Yuille says the Secretary of State for Trade and Industry's regulatory proposals will increase his popularity among City lawyers.

Trade and Industry Secretary Peter Mandelson will find his stock rising among City lawyers when he publishes his plans to take the politics out of the competition regulation of takeovers and mergers.

It may be a knee-jerk reaction to the hostile press he received over the BSkyB bid for Manchester United, but the move is long overdue.

As all corporate finance partners know, the potential hurdle of a politically-inspired judgment has long bedevilled the difficult job of nursing a corporate deal to completion.

Although the vast majority of decisions by Mandelson and his predecessors have been based purely on competition grounds, lawyers and their clients have still too often been left scratching their heads when one bid is referred and another is not.

Under the current system, the Secretary of State is free to ignore the recommendation the Director General of Fair Trading (DGFT) gives over whether to refer a bid to the Monopolies and Mergers Commission (MMC). He can also usually ignore the MMC's own recommendation.

Ironically, Rupert Murdoch reportedly described Mandelson's decision – to follow the DGFT's recommendation and refer BSkyB's bid – as political.

Curbing the Secretary of State's wide powers is therefore essential to create a more transparent system.

If, as has been reported, the Department of Trade and Industry's (DTI) January consultation paper proposes that the Secretary of State would, with a few exceptions, have no role in decisions about individual cases, then a step forward will have been made.

The DGFT and the MMC will not be concerned with the need to promote “national champions” or to curtail the powers of right-wing press barons or to support industries in sensitive constituencies.

But the belief that without the involvement of the Secretary of State there will be little public accountability is wrong. Politicians, can be quizzed on the Commons floor.

The Director General of Fair Trading will remain publicly accountable to Parliament via the DTI select committee. So by removing politicians from the decision-making process, much, though not all, of the uncertainty will have been taken away.

Mandelson should be aware that there is support for these proposals among City lawyers. But he must be able to deliver what he promises.