S&N Fires Opening Shot In Carlsberg Battle

Scottish & Newcastle last night began a pre-emptive strike to derail a joint bid from Carlsberg and Heineken by seeking to terminate its Russian joint venture with its Danish suitor.

The group claimed that the Danish brewer’s proposed £9 billion break-up bid with Heineken breached the terms of their 50/50 Baltic Beverages Holding (BBH) joint venture, which operates in much of the former Soviet Union.

In a Stock Exchange statement, it said that, on the basis of legal and financial advice, it had given notice to Carlsberg of breaches to the BBH agreement.

It added: “The board believes that the actions of Carlsberg constitute initation of the voluntary termination provisions of the agreement under which Carlsberg is obliged to offer its shares in BBH to S&N.”

It said it was now evaluating whether shareholders’ interests would be best served by seeking outright ownership of BBH or by bringing in a new partner or multiple partners. There have been suggestions that it could ask SABMiller or wealthy Russian entrepreneurs to become involved.

A source close to S&N, which this week branded Carlsberg’s actions as “dishonourable and incompetent”, said that although it had yet to receive a bid, it believed its partner had breached the agreement by seeking to put S&N in play as a means to secure control of BBH.

A company spokesman claimed that it had effectively triggered the so-called shotgun agreement which allows either party to make an offer to buy the other out of BBH. “We haven’t fired the shotgun, they have.”

Another S&N insider said: Hopefully this will make them think long and hard before proceeding with what is an unwelcome and unsolicited approach. They need to know if they play hostile that theyd better be prepared for us to play hostile too.

Analysts said it was a bold move by S&N and that, even if some of its claims were debatable, the prospect of a legal dispute lasting several months could put off Carlsberg and Heineken, which has no involvement in BBH.

The BBH agreement is drafted under Swedish law and the John Smith’s and Kronenbourg brewer said that it had hired Rothschild and FIH Partners, a Danish firm, to advise it on the BBH situation. Linklaters is providing legal expertise, both in the UK and Denmark.

The development comes a week after Carlsberg and Heineken were forced to make a statement confirming their interest in forming a consortium to make a bid for S&N. They had been expected to make a formal offer early next week, although analysts believe that S&N’s pre-emptive move could cause a delay while they consider their options.

Under the proposed break-up, Carlsberg would take S&N’s interests in France and Greece as well as its 50 per cent stake in BBH. Heineken would acquire S&Ns UK business and certain other European operations, notably in Finland and Portugal.

The proposed carve-up is designed to circumvent any potential competition issues in the UK as Heineken withdrew from the mainstream lager market four years ago and commands just 1 per cent of the British beer market. S&N is the market leader with 27 per cent and Carlsberg has 13 per cent.

A spokesman for the putative bidders said it was “too early to make a response”.

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