C&C crisis brewing

PLATFORM:The repercussions of a takeover of Scottish & Newcastle by a Heineken/Carlsberg consortium will be felt internationally, not least in Ireland, writes Bill Murdoch

TIME MAY have been called on Scottish & Newcastle (S&N) and its heavyweight portfolio of brands - including Kronenbourg, Newcastle Brown Ale, Strongbow cider and Beamish & Crawford - but the repercussions are certain to be felt both internationally and here.

The Vintners' Federation of Ireland, which represents more than 5,000 publicans outside Dublin and is the largest domestic lobby group in the sector, has warned about a potential reduction in the domestic beer market if the proposed takeover by a Heineken/Carlsberg consortium goes ahead.

The Competition Authority has, meanwhile, this week asked European anti-trust regulators to examine the deal.

Heineken, and associated brands, control about 21 per cent of the Irish beer market. This would be boosted by up to a further nine percentage points or more with Beamish & Crawford's share it would acquire under the deal.

This, the argument goes, would create a duopoly with Diageo - Guinness's owner - having some 70 per cent of the on-trade beer market.

That is certainly a potential issue but, importantly, not only does the S&N deal impinge on the future direction of Beamish & Crawford, it will also affect the publicly quoted, Clonmel-based, C&C group.

Under the proposed deal, Heineken will control the Bulmers cider brands in the UK, while C&C owns the Bulmers cider brand in Ireland. It is an untidy arrangement and an anomaly that could be erased instantly through the acquisition of C&C by Heineken.

So what are the prospects of this logical deal happening?

Certainly with last week's tale of woe from C&C, it is in a vulnerable phase.

The expected glum report said sales revenue dropped by about 9 per cent in the year just ended - broadly in line with a previous prediction. It also said that sales volumes of Bulmers had fallen by 4 per cent while Magners cider - once the knight in shining armour in the UK - was down by 15 per cent.

But cruelly, volume sales were down by 28 per cent in the second half, though C&C has argued that growth was strong in the off-licence market in the UK.

In sharp contrast, S&N's branded portfolio (soon to be Heineken's), enjoyed a strong year with 15 per cent volume growth, and its leading Strongbow brand gained 2.2 per cent market share.

More bad news for C&C's Magners in the UK comes with the news that S&N's Bulmers Original supported by Jacques and Strongbow Sirrus "has proved a great success", according to the document, in the premium packaged segment.

Significantly, both the trend and sentiment are going against C&C in the UK.

S&N had a 27.8 per cent market share at the end of the year but this rose to 31.4 per cent in the last quarter. Further, it is convinced that it will continue to gain market share.

Under Heineken this competition is bound to become even more intense. Heineken lists "access to the growing UK cider market" as one of the advantages of the deal, so it will be looking to squeeze more from this sector.

Seemingly unperturbed by the momentum against it, C&C expects a return to growth in the cider market this year if summer weather is normal (S&N does not put weather into its equation) as it planned a strong push in Britain.

Also, in what appears to be a good deal on paper, C&C is launching draught Magners in Britain in May following an agreement with Coors Brewers, the Carling lager company, and one of the largest British breweries, dating back to 1744.

It looks like a standstill year for C&C. Its balance sheet is in a reasonable state following the sale of its soft drinks division for €250 million, relative low levels of capital expenditure and a smaller share buyback programme.

Nevertheless, it is not going to rekindle the Magners apparition and, as effectively a solo operator competing with substantial international groups, C&C is very vulnerable.

The future development of Beamish & Crawford is also questionable; if it were to embark on a management buyout, eventually there would likely be a sale to an international group. And, under the present proposed deal, it is hard not to envisage its Cork brewery and Heineken's (Murphys Stout) not eventually standing on one site instead of two.

That deal also leaves C&C out on a limb. With the well-marketed 2002 launch of the Magners cider brand in the UK, C&C carved a momentary lucrative niche there.

But that opening was soon spotted by S&N - which has rejuvenated its sleepy Bulmers brand - and others. Going forward, Britain will be much more difficult for C&C, which also has the highly-prized Tullamore Dew in its brand portfolio.

A tie-up with a good international parent, rather than third-party agreements, would give it that much-needed financial and marketing clout.