A desperate S&N may sell its Russian Baltika operations to save itself; or
it may seek an alliance with bigger rivals to repel a combined Danish-Dutch offensive,
writes Kiron Kasbekar.
Scottish and Newcastle, the Edinburgh-based
British brewer, may sell its Finnish holding company to thwart a likely joint
bid from rival beer-makers Denmark''s Carlsberg and the Netherlands'' Heineken.
On 17 October 2007, the two raiders made known their
intention to join hands to acquire S&N. Their plan
assumes that Carlsberg would take over S&N''s interest
in Russia-based brewer Baltic Beverages Holding (a 50:50
joint venture between S&N and Carlsberg) and its operations
in France and Greece. Heineken would take over the rest
of S&N''s European operations. The likely cost of acquisition:
around $15 billion.
S&N, which is known for brands such as Foster''s, Kronenbourg
and Baltika, has responded with a statement that the proposed
joint bid was "unsolicited and unwelcome". Or,
in one word, hostile. It wants to remain an independent
entity, and has advised its shareholders to ignore the
to be yet another instance of a joint venture partner wanting to buy out the other
partner - except here the aggressor (Carlsberg) has to cast its net wider than
is usually the case. BBH owns Baltika, the biggest brewer in Russia, which is
the third largest beer market in the world. Carlsberg, it seems, has been eager
to buy S&N''s stake in the highly attractive BBH; but its joint venture agreement
is coming in the way.
Under a "shoot-out" clause in the agreement,
if one partner declines to take up the other partner''s offer to sell its 50 per
cent stake in the joint venture at a set price, the first partner is entitled
to buy the other partner out at the same price. So if Carlsberg pushes S&N
too hard on BBH, it could end up losing the venture. It''s simpler for Carlsberg
to make a grab for S&N instead. But, given the Danish group''s size, it couldn''t
do that on its own. So it chose Heineken as a partner.
It is not clear what would happen to S&N''s operations
in Asia, including China and India. In India, S&N
owns a 37.5 per cent stake in United Breweries, in which
Vijay Mallya and his associates own a similar stake. But
India accounts for a tiny fraction of global beer sales.
China, on the other hand, is much bigger and growing faster.
In 2002 it overtook the US in beer consumption to become
the biggest beer market in the world. (See
Scottish & Newcastle owns or has an
interest in over 50 breweries worldwide, producing more than 50 million hectolitres
annually. The group has more than 15,000 employees in direct operations in Europe,
another 15,000 in joint ventures in Eastern Europe and over 7,000 in joint ventures
and invested companies in Asia (including the UB Group in India).
is rife that a desperate S&N may dispose of Hartwall, its Finnish holding
company, which owns its 50 per cent stake in BBH, in which Carlsberg holds the
rest. BBH has operations in Russia, Ukraine and Kazakhstan besides the Baltic
countries of Estonia, Latvia and Lithuania.
This would be a tough decision for S&N since BBH
controls over 85 per cent of Baltika. The Baltika operations
are said to contribute about a third of S&N''s and
Carlsberg''s profits. According to S&N, "Baltika
is the one truly nation-wide beer brand in Russia and
is the market leader with a 10.5 per cent share of the
Russian beer market and almost 30 per cent of the canned
Another option S&N
may consider is roping in a strategic partner from within the industry. Candidates
include SABMiller, the UK-headquartered beer group and Anheuser-Busch of the US
(maker of Budweiser beer). Both these groups are much bigger. Each of them is
about double the size, in beer sales volumes, of Heineken and about three times
the size of Carlsberg. That leaves world leader InBev, based in Belgium, with
brands such as Skol, Lowenbrau and Beck''s.
The hitch in a potential SABMiller
intervention may be that this group may be constrained by having very recently
deciding to merge its US operations with those of Molson Coors into a venture
called MillerCoors. SABMiller ranks second in the US market after Anheuser-Busch,
and Molson Coors third, and their combination is considered as likely to give
the Budweiser maker a run for its money. The two groups will have equal voting
rights in MillerCoors, but SABMiller will get 58 per cent of its profit compared
with Molson''s 42 per cent.
top 10 beer markets in 2006