S&N fury at rivals' secret takeover bid

Furious bosses at Scottish & Newcastle (S&N), Britain's last independent major brewer, were frantically bolstering their defences this week following news of a proposed bombshell takeover bid launched by global rivals Carlsberg and Heineken.

S&N chiefs have claimed Carlsberg, a partner with it in Baltic Beverage Holdings, has acted in a "dishonourable" and "incompetent" way after teaming up with another big brewer behind its back. S&N chairman Brian Stewart was told of the Carlsberg and Heineken move in a phone call from the chief executives of the two firms minutes before a stock market announcement last week.

The Edinburgh-based company looks set to defend itself fiercely against the £7.8bn bid hatched in secret by the two beer giants, with other big global brewers also set to join the bidding war.

If the joint bid is successful, Carlsberg would take S&N's stake in Baltic Beverages Holdings (BBH), a growing Russian-based brewing operation which it runs in a joint-venture partnership with the Scottish brewer, plus the company's interests in France and Greece.

Heineken would help itself to S&N's European interests, which include its UK operation headed by brand leaders Fosters and John Smith's. S&N's Indian and Asian assets would also be split between the two. But the axis of the bid centres around a complicated share sell-off agreement between the two BBH partners. It is understood Carlsberg decided some time ago that the only way around the problem was to instigate a full takeover of S&N, which led to it opening talks with Heineken.

Industry observers believe other bidders may now emerge, with SAB Miller and US giant Anheuser Busch lying in wait. The fall of S&N would follow a line of other British brewing capitulations that began with the demise of Bass, Whitbread and Allied Breweries (Tetley) through the 1990s.

The three ex-national operators are now owned by Coors of America, InBev of Belgium and Carlsberg respectively.

The Scots firm has vowed to fight the take-

over tooth and nail, but this week said it awaited a formal offer being tabled before making any official comment. In a statement to the Stock Exchange it said the approach by Carlsberg and Heineken was "unsolicited and unwelcome".

It has urged shareholders to take no action at the present time.

The fall of Scottish & Newcastle could

have a dramatic impact on the UK beer market, with questions emerging over the future of the company's breweries, beer brands and network of supply deals.

Bidders for the company are eyeing up S&N's global business, with only limited interest being placed on its UK operations.

It is likely that severe consolidation would follow acquisition of S&N by a foreign purchaser in a British market, which is seen as almost static compared with the huge potential growth areas of central Europe and Asia.

S&N operates four wholly-owned UK breweries, in Gateshead, Tadcaster, Manchester and Reading. It has a minority stake in Edinburgh's Caledonian Brewery, which produces leading cask-ale brand Deuchars IPA.

In addition, S&N operates a nationwide beer-distribution network serving thousands of wholesale and retail customers. S&N has already disposed of ale brands, such as Theakston and Courage, to focused ale companies.

INdustry REACTIONS to bid by S&N's Major rivals carlsberg and Heineken

Giles Thorley, chief executive, Punch

Its difficult to comment, because everything is still very much up in the air and these are still very early days. But it would be a shame if S&N disappeared, as it is the last of the big independent UK brewers. I suspect this whole thing could drag on for quite some time.

Paul Baker, managing director,

Daniel Thwaites

It would lead to more consolidation in the industry, which would be a bad thing. We have always supported consumer choice, but since the Beer Orders this has been very much reduced. Obviously we do not want brewers to fall by the wayside.

Tim Martin, chairman, JD Wetherspoon

I am wary of Scottish & Newcastle being taken over because they have got their strategy right, which

suits them and it suits pubs. They have not gone

down a one-product route and although they do not walk on water, they have proved to be a satisfactory supplier.

Mark Jones, chief executive, Ultimate Leisure

We would prefer to see S&N remaining independent, but we understand how free market forces work. Our main concern would be to ensure the UK beer market remained competitive. If there is less competition there would be an effect on prices, and customers would suffer.

No plain sailing in complex takeover battle

The complex share sell-off clause in S&N's joint venture with Carlsberg in Baltic Beverage Holdings could feature as one of the key issues in the takeover battle.

Apart from the share sale conditions, further difficulties could arise from the 10% stake owned by the Finnish Hartwell family in the company which might become a

stumbling block in any sale. S&N believes the company is still in rapid growth and its value has not been fully realised, suggesting Carlsberg wants to get the company on the cheap.

Further problems could arise through S&N's Asian and Indian brewing interests, where a range of complex shareholdings mean a carve-up between Carlsberg and Heineken may not be plain sailing.

Analysts believe it is these emerging beer markets, rather than S&N's established western European business, that would hold the real interest of bidders.

Meanwhile, relations between S&N and Carlsberg, its supposed "partner" in BBH, have reportedly sunk to freezing levels. S&N is said to be furious that the bid came only weeks after it sat down with Carlsberg to agree a new three-year business plan for BBH that included detailed sales and profits forecasts.

MA opinion

Carlsberg seems to have been lining up a bid for S&N since it changed the terms of its charitable status to allow it to raise more money earlier this year. Carlsberg highly treasures S&N's half-share in Baltic Beverages Holding, trading in countries where beer is booming. Lager producers' strategy seems to focus on maintaining a share in mature markets such as the UK and investing profits in growth markets. Its partner Heineken would move to a market-leading position in the UK and elsewhere overnight. S&N's recent strategy has been fairly flawless. But its open share register makes it the last of the big sitting ducks.