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UPDATE: S&N and Carlsberg head for legal battle

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UK-based brewing group Scottish and Newcastle has officially initiated legal proceedings against Carlsberg over the latter's alleged breach of a shareholders' agreement regarding the two companies' 50/50 joint venture Baltic Beverages Holding (BBH).

S&N had suggested that it believed Carlsberg's joint bid for S&N with Heineken represented an effective breach of the confidential shareholder agreement, which would allow S&N to launch a counter-bid for Carlsberg's share in the fast-growing Russian beer company.

In a regulatory announcement to the London Stock Exchange this morning (31 Oct), S&N confirmed that it had given notice to Carlsberg of alleged breaches by Carlsberg of the terms of the BBH Shareholders' Agreement.

"The board of Scottish & Newcastle has today initiated formal arbitration proceedings in accordance with the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce as provided for under the terms of the agreement," the announcement stated. "The Arbitral Tribunal will be requested to confirm the breaches of the agreement by Carlsberg and to confirm that Carlsberg is obliged to offer its shares to S&N in accordance with the agreement."

In response, Carlsberg said there was "no foundation to S&N's misguided claims". Carlsberg also warned that such arbitration proceedings in Sweden typically take in excess of 12 months. The Danish brewer said it was reserving its position with regard to a possible claim for material damages.

"S&N's legal claims are spurious, without merit and a distraction to advancing discussions on the 720p proposal the consortium made to S&N on 25 October," said Carlsberg CEO Jørgen Buhl Rasmussen.

Last week, Carlsberg and Heineken announced a GBP6.8bn bid for S&N which the brewer quickly rebuffed as "derisory". Analysts have suggested that S&N shareholders can expect that offer price to rise, particularly as it possibly undervalues the BBH share.

Meanwhile, doubts had been expressed by some over the strength of S&N's case and whether the company would take the issue to court, with others seeing it as part of a defence strategy and a possible means of pushing up the offer price.

Matthew Webb, analyst at Cazenove, said that today's move represented "an intensification" of the company's defence strategy and provided further evidence of S&N's confidence in its legal position.


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