Courage deal runs into lager problems

Negotiations over the £500m sale of Courage, the UK's second largest brewer which is owned by Foster's Brewing in Australia, have stalled.

Foster's, according to a banking source, has dug its heels in because it has been unable to obtain guarantees that would protect its flagship lager brand in the advent of a takeover of Courage by Whitbread or Scottish & Newcastle Breweries, jointly the fourth largest in the industry.

Despite the hitch, the source said Foster's was still keen to sell Courage. He also said the investigation launched by the Office of Fair Trading into beer prices would not deter Whitbread or Scottish & Newcastle from trying to take over Courage.

The source said Foster's was mostly concerned about the affect on three brands because of the reciprocal brewing arrangement it has with Holsten of Germany. This problem has a direct bearing on the talks with Scottish & Newcastle.

Foster's has the right to brew Holsten in the UK, while Holsten has the right to brew Foster's Lager in Germany. And Scottish & Newcastle has the right to import the premium Beck's lager, a main competitor to Holsten in Germany and the UK.

Premium lager is one of very few categories increasing sales in the declining UK beer market. The premium sector also generates the best profit margins.

The problem that arises with Whitbread purchasing Courage also involves a brand owned by an overseas brewer. Heineken, owned by the Dutch brewer of the same name, is brewed under licence in the UK by Whitbread. It competes directly with Foster's lager in the UK.

Whitbread has to treat Heineken with care, mainly because the Dutch company also owns another of the beers that the UK brewer has made a great success of in recent years. The beer is Murphy's, which has become very popular since Whitbread introduced its draught-flow "widget" into cans of the stout.