The Competition Com- mission has had a bad week, with its decision on Bass Brewers undermined by the High Court. But competition legislation is not the only barrier to mergers and takeovers. A hazier process, shrouded in secrecy, can prevent the takeover of a British company that works in defence or security- related industries, particularly if the bidder is foreign.
The US government is currently investigating if it will allow French electronics giant Alcatel to take over the troubled telecoms concern Lucent Technologies.
Lucent's subsidiary, Bell Laboratories, does top-secret encryption work for the US National Security Agency, which protects federal communications systems as well as providing foreign intelligence. American national security, it seems, would be compromised if the French - a supposed ally - were allowed to buy Bell.
On the other side of the pond, European defence companies are undertaking collaborative projects such as the Eurofighter. Despite the increased co-operation, the defence industry was surprised when France's Thomson CSF, now called Thales, was allowed to buy UK group Racal Electronics, which makes sensitive military communication and electronic warfare equipment. The Ministry of Defence was thought to be keen on the takeover - to increase competition.
But this more relaxed attitude in defence policy does not mean UK companies with defence interests are not protected from foreign takeovers.
Rolls-Royce, the engine manufacturer, and BAe Systems, the maker of aircraft weapons and defence products, are both key suppliers to the MoD.
The importance of the two defence giants is shown by the restrictions on share ownership - only 49.5 per cent of their shares can be owned by foreign entities. Rolls-Royce is also prevented from selling its nuclear businesses, including its submarine equipment.
Another key contractor to the MoD is the Defence Evaluation and Research Agency (DERA). Although it is now part of the MoD, three- quarters of it will be floated on the Stock Exchange next year, with stricter controls on share ownership than BAe and Rolls-Royce.
It is hardly surprising - the DERA is the largest single recipient of the ministry's money. While the most sensitive parts of DERA, including the chemical and biological weapons divisions, are to stay within the MoD, the privatised division, to be called QinetiQ, will still derive 50 per cent of its sales from MoD contracts - likely to be over pounds 350m a year.
There are many companies on the stock market indirectly prevented from selling assets to a bid from a foreign entity. Serco manages the Atomic Weapons Establishment at Aldermaston, where the Trident missiles are held - a highly sensitive task. It is also setting up a communications system for the National Crime Squad, which tackles organised crime, and it works for the UK's four-minute missile warning system and for the European Space Agency. Its contracts with the MoD are worth between pounds 100m and pounds 250m.
In theory, anyone could bid for Serco. But the government protects national security with the threat that if an unapproved company takes over a company like Serco, it could withdraw its contracts and the bidder would lose vital business. With very high security classification, the MoD may also have a golden share in the subsidiary, to enable it to take it over in the case of war.
Companies that already supply the ministry are more likely to be allowed to bid for other sensitive companies - Babcock International Group had few troubles when it bid for part of Hunting's defence interests. Ken Miller, the deputy chairman of Hunting, said: "When a defence company is taken over there is not a formal process. Most contracts from the MoD contain clauses which say if ownership changes, they have the right to take the contract away. …