Scottish & Newcastle, the UK's biggest brewer, yesterday kicked off a wave of industry consolidation across Europe with a £1.7bn deal to take control of French-based Danone's Kronenbourg beer business.
If the deal is successful, S&N will become Europe's second-biggest brewing group, trailing only Heineken of the Netherlands. Brian Stewart, S&N's chief executive and deputy chairman, said: "This will give us a platform for growth in Europe and a lot further."
But fears that the group had overpaid for the assets and disapproval that S&N had only promised cost synergies of £25m sent the shares, which fell out of the FTSE 100 index earlier this month, tumbling 12.5p to close at 390.5p. One analyst said: "This seems like a very full price. At this stage, I am not convinced about the deal."
S&N's decision to focus on expanding its brewing interests while exiting its Center Parc and Pontin's leisure operations, contrasts with its rivals' strategies. Bass has announced its intention to sell its beer unit, which includes brands such as Carling, Caffrey's and Tennent's, while Whitbread has all but admitted that it is open to offers for its brewing arm, which produces lager for both Heineken and Interbrew's Stella Artois.
Another analyst said: "Most people think the brewing industry is pretty ex-growth.... The City is likely to favour stocks like Bass over S&N because it is focusing on the high-growth leisure sector."
But Mr Stewart defended the strategy: "The issues are very different for our competitors. Alongside brand success, we also have profits growth." S&N's Scottish Courage brewing division, which markets brands such as Foster's, John Smith's and Kronenbourg in the UK, made an operating profit of £109.2m, up 5.4 per cent, in the half year to 31 October 1999.
The £1.7bn payment to Danone for the Kronenbourg assets will be spread over three years. The UK brewer will make an initial cash and shares payment of 5bn francs, followed by warrants for 25 million shares and annual payments starting at Fr600m.
S&N will initially own and manage 75 per cent of the company, with Danone holding on to a 25 per cent stake with an option to sell out later to focus fully on its food and bottled water interests. The deal, which is subject to regulatory approval, will give S&N access to businesses in France, where Kronenbourg is the leading brand and has a 40 per cent market share, in Belgium, where the French group's Alken Maes brand has a 14 per cent share and Italy, where Peroni is the number two beer, with 27 per cent of the market.
Separately, Danone said it would restructure its Spanish brewing operations by selling its stake in San Miguel to Mahou. Although not currently part of the deal because of their complex ownership structure, Mr Stewart said he was "intending on bringing the Spanish assets into the partnership".
S&N is believed to have fought off competition from the likes of Denmark's Carlsberg, the London-listed South African Breweries and Belgium's Interbrew to clinch the deal with Danone.
Interbrew, which is thought to be interested in snapping up Whitbread's brewing business, yesterday issued a garbled statement confirming that it had withdrawn from the running.
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