E-Malt.com News article: South Africa: Will SABMiller intervene in Scottish & Newcastle deal?

What are the chances of SABMiller intervening as a white knight in the Carlsberg/Heineken joint bid for Scottish & Newcastle?

The market clearly thinks that someone will, since - although the implied bid price is not yet explicit - the share price is above the indicated price of the hostile bid, Business Day (Johannesburg) reported October 29.

At first blush, you would have to say the chance of another bid, particularly from SABMiller, is not high. But then how do you explain the market's suggestion that a higher bid is likely? One possible reason is the expectation that the Danes and the Dutch will increase theirs.

But if another brewer were to come in, who would it be and also why?

InBev is probably ruled out because the businesses don't overlap very well, and there would be some steep competition regulatory issues to overcome. Anheuser-Busch is a distinct possibility because of its small international footprint. The decision of SABMiller and Coors to join forces in the US, Anheuser's prime market, also puts new pressure on the US giant.

SABMiller is also a possibility. There is a feeling SABMiller should have some presence in the UK, where it has its primary listing. It does not seem like a particularly compelling business argument, but SABMiller's brand profile could conceivably be filled out by Scottish & Newcastle's solid and popular brand set. The company also has the profile of being an aggressive acquirer, and there may never be another opportunity to incorporate such a full set of European brands.

Yet, instinctively, so much speaks against the possibility of SABMiller entering the fray. A lot of the oomph behind the SABMiller share price comes from its predominant emerging market profile, which is, of course, burning hot at the moment. The beer market in the UK, and most of old Europe for that matter, is pretty stagnant, so the inclusion of Scottish & Newcastle would diminish the stock's attractiveness to investors.

The other problem is price. One informed source puts it this way: "the spivs are in". Scottish & Newcastle has been the subject of takeover speculation for such a long time, which tended to pump up its share price. Large numbers of its shareholders only hold the stock on the basis that either this deal or some other deal will be done. But ironically, their presence makes a deal unlikely, since it pushes the price above what even aggressive acquirers are prepared to pay.

Also, the Texas auction process Carlsberg and Heineken used to reach agreement between themselves practically guarantees one or both will overpay. A white knight may have to outbid the overpriced price. That's never fun. Beer sometimes has a slightly political afterburn. Politicians often are quite happy to see their country's IT companies, for example, being bought by foreigners, but get twitchy about their beer companies. SABMiller can claim some British lineage by virtue of its London listing. Yet the UK lager market has always been a European affair, and Belgian brand Stella Artois is in fact the largest-selling lager brand.

On balance, the odds seem to be stacked heavily against a SABMiller intervention, but stranger things have happened. Best keep tuned.


31 October, 2007