E-Malt.com News article: Denmark: Carlsberg CEO denies rumours about Scottish & Newcastle takeover

Carlsberg CEO Nils Smedegaard Andersen poured cold water on ongoing rumours that the Danish brewer is considering a bid for UK peer Scottish & Newcastle, but this doesn't mean a merger couldn't happen in the long term, analysts said, according to AFX News Limited, August 9.

Market talk has been rife over the past six months as to whether a takeover of Scottish & Newcastle is on the cards, with speculation focused on Carlsberg since the Danish brewer changed its shareholder charter to enable it to issue shares.

But Carlsberg's CEO was reported in local publication Berlingske Tidend as saying this is "wild speculation."

"We are interested in buying in growth markets (East Europe and Asia, including China)," he said in an interview with the newspaper. "If we are to buy up in West Europe, the return must be good."

In response, Sanford C Bernstein analyst Trevor Stirling told Thomson Financial News he is sceptical of a Carlsberg bid for Scottish & Newcastle, but that in the long term it is possible a deal could be done between the two, perhaps in the form of a merger of equals.

"I am sceptical of a bid, as taking maximum equity and maximum debt Carlsberg could just -- at a push -- afford Scottish & Newcastle at today's share price, but shareholders obviously want a premium, and I doubt Carlsberg's shareholders would be happy about such a highly-leveraged takeover."

Stirling added that "in practice, Scottish & Newcastle appears to be out of Carlsberg's reach, but in the long term a deal is possible."

He pointed out that the two brewers have plenty of overlap, with synergies in the UK, Portugal and Finland. Indeed, a merger would create virtual monopolies in Portugal and Finland, he said, noting that this would raise competition issues.

Scottish & Newcastle takeover rumors were further excited in mid-May when the Carlsberg Foundation ruled to lower its holding requirements in the brewing group, enabling the company to issue shares. Until then, analysts had suggested that Carlsberg's finances represented a barrier to a potential bid, but the group's ability to issue shares has more recently raised speculation that the Danish firm could have freed up a war chest of up to 70 bln dkr (12.6 bln usd) for acquisitions.

Stirling believes Carlsberg's change of charter is unlikely to have been made with a bid in mind, but is more likely to have come as the brewer was worried by talk Scottish & Newcastle could be taken over, and so wanted to have the ability to buy out the UK firm's share of their Russian joint venture, Baltic Beverages Holding (BBH).

In a research note published this morning, Lehman Brothers said it has confidence that a deal between the Danish and UK groups would not be detrimental to Carlsberg's shareholder value in the short term, while it would add value in the longer term by giving Carlsberg 100 pct control over BBH.

Another London-based analyst told Thomson Financial News that the UK group is "essentially a business of two halves: one that is exposed to mature western Europe markets, and is often considered to be the less exciting side, while the other consists of the BBH venture."

The analyst pointed out that, out of potential trade buyers, only Carlsberg could get control of the 'second half' of Scottish & Newcastle's business, and therefore has the upper hand in any take-out situation.

He added that Carlsberg could get maximum gain from what is arguably Scottish & Newcastle's most attractive asset, and can thus bring together the UK group's two halves.

Dresdner Kleinwort, which has a 715 pence-per-share takeout price on Scottish & Newcastle, told investors yesterday that its valuation incorporates a 70 percent likelihood of a Carlsberg bid.

And in a previous note, the same broker highlighted that Scottish & Newcastle's mature market exposure renders it relatively unattractive to a trade buyer, but that the prospect of Carlsberg gaining control of BBH makes this the most likely deal.

In its note this morning, Lehman concluded that it expects bid activity around Scottish & Newcastle to return at some stage, and continues to value the brewer at 720 pence per share in a break-up situation. The prospect of such activity is partly responsible for the broker raising its price target on the UK stock to 600 pence from 585 pence, while at the same time Lehman also upped its target price on Carlsberg to 860 dkr from 755 dkr previously.


10 August, 2007