Comment - The beginning of the end for Scottish & Newcastle?
The announcement earlier this week that Carlsberg and Heineken are discussing making a bid for Scottish & Newcastle came earlier than the two European brewing powers would have liked. With no bid having been actually made, it's likely that Carlsberg and Heineken will have to now pay a premium to take control of S&N.
Due to the movement of S&N's shareprice, under London Stock Exchange rules, Carlsberg and Heineken were forced to declare they were meeting to discuss a bid to break up the UK brewer.
And so, with no bid on the table, the consortium has effectively lost the element of surprise and handed S&N valuable breathing space to mount a defense against what it has called an "unsolicited and unwelcome" prospective bid.
"S&N is confident in its future as an independent group with a combination of strong growth in emerging markets and cash generation in developed markets," the company said.
With S&N currently being valued in the region of GBP7bn (US$), and no actual bid yet in existence, S&N's rebuff alone suggests that GBP7bn won't quite swing it.
Perhaps more importantly though, the announcement has opened the door for a competitive counterbid. You can safely say that the other global brewers are currently doing the maths, to see what it would take to trump Carlsberg and Heineken. In Anheuser-Busch, especially, the two European have a possible nemesis. After all, the US behemoth would be very interested in S&N's interests in Eastern Europe, through its joint venture with Carlsberg, Baltic Beverages Holding. A-B will also be attracted by the UK side of S&N, a country in which A-B does not have the kind of high profile it probably feels it should have.
Speculation earlier this year suggested that Diageo and SABMiller had met to discuss making a move on S&N. While neither side would, obviously, confirm that they had held talks, such a move seems unlikely now. With SABMiller merging its US operations with Molson Coors, announced earlier this month, the brewer is now free to focus more intensively on the semi-lucrative developing markets of China, Latin America and India - it seems unlikely it would want to take on investments in more problematic Western European markets.
Another unlikely scenario is a possible bid by the only other brewing contender. However, InBev would have major anti-competitive issues in the UK, where the Belgian-based company is already highly visible.
S&N, meanwhile, can, justifiably, feel aggrieved that Carlsberg made the announcement public before discussing the matter privately with S&N. After all, the two have been best buds when it comes to BBH. Indeed, Carlsberg and S&N have enjoyed huge rewards from the Eastern European unit, which is now the largest brewer in Russia.
Interestingly, however, the two have a reasonably 'hostile' silver bullet plan in place, when it comes to BBH. If Carlsberg were to offer to buy S&N's stake in BBH, and S&N refused, then S&N has the opportunity to buy Carlsberg's stake for the exact same amount that Carlsberg initially bid - and vice versa. So, the two "understand each other", or so the theory goes. An overall bid for S&N with Heineken, however, circumvents this rather conveniently.
A protracted takeover battle now probably looms. S&N will need all its powers to persuade investors that passing up on a takeover offer - which many analysts have been arguing in favour of for so long - is the best move. Ultimately, as with all these things, it will come down to a question of price, and the answer to that is far less straightforward now than it might have been had Heineken and Carlsberg managed to keep their powder dry a little while longer.
Sectors: Beer & cider
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