S&N aims to foil takeover with BBH sale

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The Independent Online

Scottish & Newcastle is to seek a buyer for its 50 per cent stake in BBH, its Russian operation, in a bid to foil Heineken and Carlsberg, which last week revealed they were working on a joint takeover approach to Britain's biggest brewer.

S&N believes the takeover is an attempt by Carlsberg, the co-owner of BBH, to acquire the Russian business on the cheap. The Danish brewer has teamed up with Heineken, which is keen to further its interests in the UK through S&N's domestic operations, with the two companies set to table a formal bid, possibly within the next fortnight.

Under the terms of the BBH joint venture, Carlsberg is entitled to make an offer for S&N's stake at any time, but would be forced to sell its share if S&N came back with a higher offer.

The arrangement – described by investment bankers as a "shotgun" contract – makes it tricky for Carlsberg to attempt to acquire complete control of BBH with a straightforward offer to S&N. A takeover of the entire company could therefore be a less risky way for the Danish brewer to acquire BBH in full, particularly with a partner such as Heineken on board to assuage potential concerns from the UK's competition watchdogs.

However, S&N believes that the market undervalues the potential of BBH and that a bid from Heineken and Carlsberg, expected to be worth no more than 750p a share, would reflect this shortfall. Its advisers are thus canvassing other parties potentially interested in BBH, including most of the world's major brewing giants, in an attempt to secure a higher price for the Russian unit while simultaneously derailing Heineken and Carlsberg's takeover plans.

Although Heineken and Carlsberg have yet to submit a formal bid for S&N, the British company last week described their interest as "unsolicited and unwelcome".

Leading shareholders have already begun to indicate that a bid of less than 800p a share for S&N would be poorly received, even though the company's stock – which closed on Friday at 766.5 – has soared since the takeover became public.

BBH is keenly prized because global brewers have identified Russia as a key growth market at a time when sales in their established markets have flattened out. The business already accounts for around half of Carlsberg's operating profits, and about a third of profits at S&N, but demand in Russia for beer has been growing quickly in recent years. The typical Russian now drinks 80 litres of beer each year, four times the quantity consumed in 1990.

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