An Anglo-Scandinavian ferry giant emerged yesterday as Britain's P&O and Sweden's Stena Line were given a conditional go-ahead for their merger by competition authorities in Westminster and Brussels.

Both the UK Government and the European Commission gave the merger the green light provided the two companies agreed to price capping on short Channel routes once duty-free sales were abolished in mid-1999. The new company, P&O Stena Line, will start operations early in 1998. Margaret Beckett, President of the Board of Trade, said the price cap was necessary because the abolition of duty-free retailing might have led to a "fall- out" among ferry operators.

Despite the seemingly onerous condition, both companies expressed delight with the deal. They have been waiting to combine since October 1996 when both claimed they needed to cut capacity and end the fierce fare wars between ferry operators.

"We will start implementing the plan within hours. It's been a long time waiting for it but at least it has been worth waiting for," said Lord Sterling, chairman of P&O.

Stena will take a 40 per cent stake in the venture while P&O will get the remaining 60 per cent. Both will have equal voting rights.

Some 1,000 jobs in the total workforce of 5,000 are likely to be axed through voluntary redundancy. The Rail, Maritime and Transport workers union, which represents most staff, gave a cautious welcome to the merger. The two companies will combine operations across the Channel, especially on the lucrative Dover-Calais route, competing mainly with Eurotunnel.

- Randeep Ramesh