S&N clinches deal for Courage

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The Independent Online
Scottish & Newcastle is due to announce today its long-awaited takeover of Courage in a deal that will see it leapfrog Bass to become the number one brewer in Britain.

The deal for Courage, a subsidiary of Australia's Foster's Brewing, is thought to be worth more than pounds 500m and would involve an S&N rights issue to raise pounds 200-250m.

Foster's is expected to retain its 50 per cent stake in Inntrepreneur, the 4,350-strong chain of pubs owned jointly by Courage and Grand Metropolitan, the international food and drinks group. It is understood that Courage's breweries will continue to supply Inntrepreneur pubs until the current agreement expires in March 1998.

A takeover of Courage would be an ideal geographic fit and considerably strengthen Edinburgh-based S&N's presence in the south of England.

Foster's had been negotiating with S&N - and, until February, with rival Whitbread - for almost two years. But the international nature of the deal and disputes over brand rights delayed the talks. An important hurdle was removed this week when the Office of Fair Trading cleared Britain's brewers of overcharging their tied houses. A reference to the Monopolies and Mergers Commission would have put the proposal on hold for several months, and could even have scuppered it.

Given the over-capacity in the brewing market, rationalisation of Courage's brands and assets can be expected, though this may also conveniently avoid inquiries by the OFT. A combined company would have more than 30 per cent of the market, and some analysts have doubted whether S&N would be allowed to retain such a large share. Bass, the current market leader, has a 23 per cent share.

One option might be for Foster's to retain Courage's half-share in the joint venture at Mortlake brewery in London with Anheuser-Busch, the world's largest brewer and owner of the American Budweiser brand. Anheuser is set to use Mortlake as a platform for an assault on Europe with its Budweiser lager.

Other Courage brands include Holsten, which is brewed under licence, Kronenbourg, John Smith's and Foster's lager. S&N's brands include McEwan's Export and Newcastle Brown Ale. S&N has a high-quality pub estate including 1,650 Chef & Brewer outlets, which it bought from Grand Metropolitan in 1993 for pounds 682m.

With S&N's gearing already standing at 41 per cent in October, the company may not be able to take on further substantial debt to buy Courage.