Analysis - S&N brings takeover saga to a close with final consent
Last week's announcement that Scottish & Newcastle (S&N) had finally agreed to recommend Carlsberg and Heineken's joint GBP7.8bn (US$15.5bn) takeover offer signalled the latest and possibly final chapter in the four-month saga. Olly Wehring reports on what the consortium partners will be getting for their money.
The announcement late last week that Scottish & Newcastle (S&N) had finally acquiesced to Carlsberg and Heineken's overtures signals the latest - and possibly final - move in an intense four months for the three brewers.
The UK company finally agreed to recommend a GBP8.00 per share offer from the European consortium on Friday (25 January). So, what will Carlsberg and Heineken get for their GBP7.8bn (US$15.5bn), should the transaction go through?
Now that the slings and arrows have been put down, and Carlsberg and Heineken appear finally to have got what they have been chasing, the carve-up of Scottish & Newcastle will see the two European brewers shake hands and head back to their respective headquarters with a share each of the UK brewer's booty.
For Heineken, this in effect adds up to the majority of S&N's European operations as well as its holdings in the US and India. The Dutch brewer will take control of the UK company's assets in the UK - including the Kronenbourg licence - Ireland, Finland, Portugal and Belgium. In the US, Heineken will handle S&N's import business, while in India Heineken will take over the 37.5% stake S&N holds in United Breweries.
As holder of the top spot in the Indian beer market, United Breweries is probably the most attractive aspect of Heineken's haul. With a 45% share of the market in a country where the global brewers have spent the last few years climbing over each other to make brewery acquisitions or secure joint ventures, the Dutch can rightfully be excited about their future in the country.
In Vijay Mallya, an entrepreneur who hit the drinks headlines last year when UB bought Whyte & Mackay for US$1.18bn, the company has a colourful, flamboyant leader. Quite how the Heineken family will get on with Mallya is interesting to ponder, and may provide a fair few column inches going forward.
Indeed, reports out of India over the weekend suggested that the two sides will need to sit down and talk sooner rather than later. "While the UB Group has had an excellent and productive relationship with Scottish & Newcastle during the period of the association, we welcome the fact that Heineken will be associated and be a potential shareholder of United Breweries on terms that are yet to be discussed and agreed," Mallya was cited as saying over the weekend.
In Europe, meanwhile, Heineken will become the leading brewer in volume and value after the transaction. The company will now top the tree in the UK, while moving up to number two in Portugal, Finland, Belgium and Ireland. Granted, all of these markets are reasonably developed when it comes to brewing, so Heineken's growth is hardly going to be spectacular in the region. But the company remains excited by several possibilities here, including access to the growing UK cider market and the acquisition of brands it sees as complementary to its current portfolio, which it can leverage on the international stage.
In total, Heineken's consolidated annual volumes will rise post-acquisition from the current 112m hectolitres to 139m hectolitres, while revenues will increase from EUR11.8bn in 2006 to around EUR15.2bn. Meanwhile, the brewer is focusing on projected synergies in the region of EUR120m by year four. While it is early days, the company has refused to rule out redundancies.
For Carlsberg, meanwhile, the transaction will "transform Carlsberg", as CEO Jorgen Buhl Rasmussen put it, into the world's fastest growing global brewer. In Baltic Beverages Holding (BBH), the Eastern European joint venture which S&N jointly owns with Carlsberg, the Danish company can justly claim to have taken the jewel in S&N's crown.
The S&N holding in BBH transfers to Carlsberg, giving the company complete control of the company, which is the market leader in the growing Russian market. It is here that Carlsberg's task is a much easier one. The Danish company knows not only the markets that BBH operates in, but also the people running BBH. With 38% market share in Russia and leading positions in Kazakhstan, Uzbekistan and the Baltic states, it is understandable that BBH has pricked the interest of several global brewers. Carlsberg's fear, in the meantime, would be that a counter offer comes in from the likes of Anheuser-Busch or SABMiller, for example, before the deal is done.
In France, Carlsberg will acquire S&N's Brasseries Kronenbourg, the country's market leader, but one that has proved problematic of late. With a tough regulatory environment in the country, coupled with the increasing importance of the off-trade, Carlsberg is well aware that the beer brand requires some attention. The brewer said it will look at extracting cost and revenue synergies and refocus attention on the French on-trade. Time will tell how successful this strategy will be.
Finally, in China, Carlsberg is also set to take control of S&N's 17.5% stake in Chongqing Brewery. With a population of 31m, the Chongqing beer market presents "significant potential", Carlsberg says, and fits well with the brewer's current strategy of "focused expansion" in the country.
The journey to secure ownership of Scottish & Newcastle has been a bumpy one for both Carlsberg and Heineken. From an initial proposal of GBP7.20 per share, the European consortium is set to buy S&N for GBP8.00. While straining the relationship between Carlsberg and S&N, the end appears in sight for the UK brewer. Has all the hard work been worth it? Carlsberg and Heineken are unequivocally in agreement that it has been. Challenges abound for both brewers, however, and it appears that the really hard work is yet to begin.
Sectors: Beer & cider
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