Proposals for ferry merger heading into deep waters

Date: 11/09/1997

THE planned merger of cross-Channel services by the UK's P&O and Sweden's Stena is set to hit the rocks this month as European Commission officials prepare to warn the companies that the deal cannot go ahead in its present form.

Competition officials say the Commission will catalogue a list of objections to the shipping companies' plans to consolidate cross-Channel capacity, in response to falling demand following the launch of Le Shuttle and Eurostar train services through the Channel tunnel operated by Anglo-French Eurotunnel Plc.

Before last year's fire in the tunnel, ferry services out of Dover were running at 30&percent; to 35&percent; of capacity, compared with standard levels of 50&percent; to 55&percent; in the past.

“We will send a statement of objections to the companies probably in the next ten days. That is something we are finalising at the moment,” said a source close to Competition Commissioner Karel van Miert.

The merger deal will not be allowed to go ahead in its present form, but the Commission refuses to say whether it will be rejected outright or whether tough conditions will be imposed on the market power of the new operation in order to win belated approval.

“This objection letter will either be totally negative, or say that we have certain reservations,” said the source, adding that possible reservations might be overcome by an undertaking not to raise prices beyond certain agreed thresholds and to offer 'real competition'.

The current merger plans are reported to include the removal of two ships from the cross-Channel Dover to Calais route, out of the 14 ships currently operated by P&O and Stena.

This move would save 115 million ecu a year but would cost more than 400 jobs.

Following the resumption of Le Shuttle services after last year's fire, ferry bookings during the summer have been buoyed by the strength of the British pound. But company officials expect demand to drop sharply in October as the holiday season comes to an end.

The planned new company, to be called P&O Stena line, would be 60&percent; owned by P&O and 40&percent; by Stena. It also expects to operate on routes between Dover and Zeebrugge and Newhaven and Dieppe.

Stena and P&O will be allowed to reply to the Commission's statement of objections and then request a formal hearing with company lawyers and officials to try to thrash out an agreement on the merger.

A final decision is therefore unlikely before the end of the year.