Doubt over motive behind Dutch cartel office

Date: 23/05/1996

By David Thomas

THE Dutch government's intention to set up its own cartel agency in line with best practice in the EU is as much about attracting foreign investment for small companies as it is about ending the country's reputation as a 'cartel paradise'.

Moreover, market analysts warn the package of measures announced this month by Economics Minister Hans Wijers could well be full of holes by the time the Dutch parliament has finished with it.

The Netherlands has long been an anomaly in European corporate regulation, lacking a body to investigate and prosecute the creation of cartels and arguably encouraging the existence of huge, internationally-strong behemoths.

Despite its size, this small country of 15 million people manages to boast Royal Dutch/Shell, Unilever and Philips among its leading companies, while certain sectors such as brewing and the media are dominated by a handful of powerful firms.

The problems caused by the lack of a national cartel office were highlighted last year by the Holland Media Groep - an alliance between the Netherlands' largest television producer Endemol, independent channels RTL4 and RTL5, and private broadcaster Veronica.

While the alliance would have been tiny in European terms, it threatened to win 60&percent; of national advertising and 42&percent; of viewers in the Netherlands.

Worried by this prospect, the government referred the matter to Competition Commissioner Karel Van Miert, who blocked the alliance because of its potential dominance of a national market.

To avoid a repeat of this situation, the government - strongly supported by the free-market Liberals - has drawn up legislation which would require all domestic mergers exceeding 115 million ecu to be notified, ban some price-fixing accords and set a maximum fine for infringements of 10&percent; of company annual sales revenue.

But Dutch market analysts are sceptical about the motives behind the legislation, suggesting it has more to do with the relative under-valuation of the local stock market than with coming into line with the rest of the EU.

“They want to put an end to the belief among foreign investors that it is impossible to take over companies in the Netherlands,” said one.

While the Dutch stock market increased in value well ahead of the rate of inflation during the Eighties in line with other markets, the strong gains in prices were concentrated in the big companies.

For example, the average share price of construction companies in the Netherlands is only 8.5 times greater than their earnings per share.

Compare this with France, where building companies are worth 15.5 times earnings and Germany 11 times. Dutch banks are valued at 10 times earnings, while Belgian and Swiss banks are worth 13 times.

Roel Gooskens, director of research at Amsterdam's HSBC Van Meer James Capel, is also doubtful about the government's ability to get the legislation through the parliament intact.

In particular, he believes, the fine of 10&percent; of sales will prove to be too high for most Dutch MPs.

More fundamentally, Gooskens believes the attempt to regulate monopolies at the national level is quickly becoming an anachronism, especially in the case of a small open economy like the Netherlands.

“The Dutch market is so small that having a monopoly here doesn't mean much,” he says. “With open trade borders in the EU, a real monopoly would only work if you had a strong EU market position. From that point of view, it doesn't make much sense having regional legislation on monopolies - the European Commission is far more important.”

His words will be music to Van Miert's ears.