Just heard it on NPR.
Scottish & Newcastle accepts $15 billion bid
Ends long-running battle since last year.Jan. 25 (Bloomberg) --
Carlsberg A/S and Heineken NV agreed to buy Scottish & Newcastle Plc for 7.8 billion pounds ($15.4 billion) after a three-month battle that hinged on control of the British brewer's fast-growing Russian assets.
Carlsberg and Heineken today said they offered 800 pence a share in cash for Edinburgh-based S&N, the maker of Foster's beer and Strongbow cider. That's 26 percent more than the closing price on Oct. 16, the day before the largest Danish and Dutch brewers said they were considering an offer. Carlsberg is paying 54.5 percent of the total and Heineken the remainder.
The bidders raised their offer three times, driving their own shares lower on concern they'd overpay. S&N and Carlsberg co-own Baltic Beverages Holdings AB, whose earnings are expected to surge by a third in two years on Russian demand for Baltika and Nevskoye beer. Carlsberg wants full control of BBH, while Heineken will get S&N operations in the U.K. and India.
BBH ``is one of the fastest-growing breweries and one of the most profitable in the world,'' Bjoern Schwarz, an analyst at Sydbank in Aabenraa, Denmark, said by telephone. Carlsberg ``are also creating a platform for future growth in Asia.''
Carlsberg, which announced a $6 billion share sale to help pay for the deal, sank as much as 6.1 percent in Danish trading.
The brewer ``probably paid a little bit too much,'' said Andy Lynch, who helps manage about $10 billion as portfolio manager at Schroders Investment Management in London.
Brewing Deals
Brewing deals accelerated after SABMiller Plc, the third- largest beer company, and Molson Coors Brewing Co. last year agreed to merge U.S. units to win back drinkers from Anheuser- Busch Cos. and save $500 million a year. SABMiller also recently agreed to buy Royal Grolsch NV, whose Dutch roots date to 1615.
Heineken, which today said it will save 120 million pounds a year by buying S&N's U.K. assets, gained 61 cents, or 1.5 percent, to 40.89 euros at 3:20 p.m. in Amsterdam.
``Synergies are very important,'' said Jan Meijer, an analyst at Theodoor Gilissen Bankiers in Amsterdam. ``That's how Heineken has to make the deal work.''
S&N, whose Kronenbourg beer is the market leader in France, rose 19 pence, or 2.5 percent, to 785 pence in London. Carlsberg declined 9 Danish kroner, or 1.6 percent, to 549 kroner in Copenhagen.
Heineken and Carlsberg have tumbled about 12 percent and 30 percent respectively since they unveiled their pursuit of S&N in October, partly dragged down by a worldwide equity slump this month amid concern the U.S. will fall into recession.
Geographical Split
Carlsberg is gaining S&N's operations in France, Greece, Vietnam and China, as well as BBH. In addition to the U.K., Heineken gets units in Ireland, Portugal, Finland, Belgium, the U.S. and India. S&N owns 37.5 percent of United Breweries Ltd., the owner of Kingfisher, India's largest beer brand.
Kronenbourg, which will be made by Carlsberg in France, will continue to be sold by Heineken in the U.K. under license, the Danish brewer said. S&N will carry on with ``business as usual'' for the next three months, Carlsberg Chief Executive Officer Jorgen Buhl Rasmussen said on an Internet broadcast.
``This acquisition will make us the world's fastest-growing brewer,'' Rasmussen said in the statement. He said it was ``too early'' to discuss potential job cuts and brewery closures or the costs to integrate the S&N assets.
For Heineken, the deal ``creates significant opportunities in profitable markets,'' Chief Executive Officer Jean-Francois van Boxmeer said. The deal will add to earnings ``immediately,'' he said in an interview.
BBH Disclosure
S&N has been advised by Deutsche Bank, Rothschild and UBS AG. Lehman Brothers Holdings Inc. and Credit Suisse Group are advising Carlsberg and Heineken. The deal is subject to a break fee of 1 percent of its value, or 78 million pounds, assuming full dilution of S&N's shares.
Scottish & Newcastle today won disclosure of earnings forecasts for BBH, the Russian venture with Carlsberg. The companies said BBH's earnings before interest and taxes will rise 34 percent to 990 million euros ($1.5 billion) by 2010 as Russian demand surges. The nation's beer market is expected to grow 5 percent this year, falling to a 3 percent rate by 2010, the statement shows.
``Given their belligerence in not entertaining discussions early on, they've done a very good job for shareholders,'' Chris Gower, an analyst at MF Global in London, said of S&N. ``It went down to the wire and then some.''
Gower said BBH's earnings forecast was better than he expected. He doesn't expect a rival bid for S&N to emerge.
Russian retail sales will climb by an average 22 percent annually through 2011 as disposable incomes increase by an average 10 percent a year, according to Renaissance Capital. The country is the world's biggest exporter of crude oil and natural gas.
Arbitration, Rights Offer
The brewer in October started arbitration against Carlsberg over BBH's ownership. S&N claimed Carlsberg broke the terms of the shareholder agreement when it made the first approach.
That arbitration is still ongoing in case the offer isn't accepted by S&N's shareholders, spokesman John Kiely said today.
Carlsberg said today it will finance the deal through new debt facilities and an equity bridge loan. The company said it has new bank facilities of 29 billion kroner to finance the deal and hired banks including Lehman to underwrite a stock sale to existing investors aimed at raising 31.5 billion kroner ($6.2 billion). It didn't give timing for the rights offer.
``Market conditions are certainly not the best for an equity issue right now,'' said Vangelis Bratsikas, a fund manager at Clariden Bank in Zurich, which runs about $40 billion, including shares of all three brewers. He expects the financing will eventually go through when markets recover.
Dilutive Deal
The S&N transaction will be ``initially be 10 to 15 percent earnings-per-share dilutive for Carlsberg, depending on synergy assumptions,'' Merrill Lynch & Co. analysts said in a note published Jan. 17 that assumed an 800-pence bid. They estimate that Carlsberg's so-called fair value would be reduced by 20 percent to 25 percent as a result of an equity sale.
Carlsberg estimates it will save 1.3 billion kroner a year, before taxes, from the third year after the takeover is completed, including savings on production and distribution.
Scottish & Newcastle rejected an initial unsolicited approach worth 720 pence a share in October and turned down a sweetened proposal of 750 pence a share in the following month.
The U.K. Takeover Panel yesterday agreed to extend the bid deadline for a second time, until midday today, after moving the date to Jan. 24 from the original timeframe of Jan. 21.
S&N's pension trustees said today they won Heineken's ``long term'' support for the pension plan, and the Dutch brewer will pay 50 million pounds towards the plan's deficit once the deal is completed.
Scottish & Newcastle said Jan. 14 that U.K. beer and cider sales were unchanged in the fourth quarter as reduced consumer spending offset growth in brands such as Strongbow. The quantity of beer and cider sold in the U.K. during the quarter was down 2 percent from a year earlier.
To contact the reporters on this story: Amy Wilson in London at [email protected] ; Meera Bhatia in Oslo at [email protected] .
Last Updated: January 25, 2008 09:23 EST
