E-Malt.com News article: UK: Scottish & Newcastle plots buy-in of BBH

Scottish & Newcastle is plotting to fund a solo bid for Carlsberg's stake in the two companies' Russian joint venture through a massive rights issue, The Telegraph published October 29. Under the plan, the British brewer would also borrow against the future cashflow of the venture.

The audacious proposal is among a number of options being studied by the board of S&N as a way of fending off an unsolicited takeover bid from rivals Carlsberg and Heineken. The duo last week tabled a 720p-a-share bid, valuing S&N at £6.8bn. The offer was immediately rejected by the board, with chairman Sir Brian Stewart describing it as "derisory".

The board of S&N has discussed various funding options to buy Baltic Beverages Holding

When news of Carlsberg and Heineken's intentions first broke, S&N considered joining forces with other global brewers that could provide the financial muscle needed to gain control of Carlsberg's share of the venture – Baltic Beverages Holding (BBH) – which could cost up to £4.5bn.

SABMiller, which produces its eponymous Lite, and Budweiser brewer Anheuser-Busch are both understood to be watching the situation closely.

But the S&N board is now considering how it could seize control of BBH without compromising its independence. There is concern within S&N that inviting another brewer to become an equal joint partner would put it back to square one, leaving the company vulnerable to further takeover approaches.

The board has discussed a number of options to go it alone, including raising part of the money as equity through a rights issue. The rest would be made up by borrowing against the cashflow of BBH. A further possibility discussed by the board is to aim to buy the whole of BBH and dispose of 30 per cent, leaving S&N with a controlling stake. The board would ask banks for a loan based on the future disposal, a method of borrowing known as bridging debt finance.

Directors feel shareholders will look kindly on a rights issue if it meant gaining full control of BBH, making S&N a more valuable company in the future.

The carve-up that Carlsberg and Heineken have planned for S&N if successful in a takeover reflect the Danish company's intent on gaining full control of BBH.

The Russian brewer of Baltika is jointly owned by Carlsberg and S&N and represents the key growth area for both companies. The joint ownership has until now been protected by a complex "shotgun" arrangement where either company bidding for the other's stake must be prepared to sell its own stake for the price it proposed if its partner launches a counter-bid. S&N has accused Carlsberg of triggering that agreement by tabling the joint bid.

BBH is the leading player in Russia, Ukraine, the Baltic countries and Kazakhstan. It has 19 breweries, 10 of which are in Russia, four in the Baltic states, three in Ukraine, one in Kazakhstan and one in Uzbekistan. The company employs more than 14,500 people.



31 October, 2007