Hostile offer for Scottish & Newcastle

Carlsberg and Heineken have teamed up to make a hostile offer for Scottish & Newcastle, the owner of Irish brewer Beamish & Crawford and the maker of Kronenbourg and Foster's lager.

Scottish & Newcastle shares surged 19 per cent yesterday, valuing Britain's largest brewer at £7.2 billion.

Carlsberg would gain control of Baltic Beverages Holding (BBH), its Russian venture with the Edinburgh-based company, while Heineken would get the UK brands.

Irish drinks group C&C, which competes with Scottish & Newcastle in the UK's premium cider market, saw its share price rise 3 per cent on the news, which was thought to be positive for the group. C&C has seen its profits fall sharply, partly as a result of heavy price-led competition from Scottish & Newcastle.

It is thought that Heineken, were it to take control of Scottish & Newcastle's Bulmers brand, would stop cutting prices and invest more heavily in marketing premium cider to British drinkers. That would help the category to grow in popularity and have positive knock-on effects for C&C's Magners brand.

Scottish & Newcastle said yesterday that the approach was "unsolicited and unwelcome".

BBH, which owns Russia's largest brewer, had £724 million of sales last year and would increase Carlsberg's emerging-market earnings as western European growth slows.

Larger rival SABMiller agreed last week to combine its US assets with Molson Coors Brewing to cut costs and widen distribution.

"Carlsberg is desperate to get its hands on BBH and control over the biggest-growth part of its business, which has been half-owned," said Bruce Davidson of Blue Oar Securities in London, who has a "sell" rating on Scottish & Newcastle.

"The driving force is the need to get into emerging markets."

Any offer is likely to be made in cash, and there's no certainty a bid will proceed, the firms said.

The British company's stock rose 12 per cent in the 12 months up to yesterday, partly on speculation that Carlsberg would bid. Heineken, Carlsberg and Scottish & Newcastle are the third, fourth and fifth-largest brewers headquartered in Europe, respectively.

Marcel Hooijmaijers of Kepler Landsbanki in Amsterdam said the offer may be worth as much as £10 billion, including £1.9 billion of debt.

- (Additional reporting, Bloomberg)