No Pain, No Gain: Last drinks loom for Britain's last beer giant

Scottish & Newcastle, a long-standing dullard of the no pain, no gain portfolio, has suddenly frothed into life, with its shares hitting their best level for more than a year. An array of takeover rumours helped; there is also a sneaking suspicion that Tony Froggatt, appointed chief executive less than a year ago, is getting to grips with the problems confronting Britain's largest and only brewer still on the world stage.

Scottish shares look a remarkable three-way bet. If Mr Froggatt does recapture past glories the shares will regain their old momentum. Should he fail the group will be a sitting duck for a predator.The third way is the likelihood that it is immaterial what Mr Froggatt manages to achieve, because Scottish is destined to fall into the arms of a bidder.

I descended on Scottish in the summer of 1999. The shares were among my early recruits. I paid 394p and for a couple of years the shares never looked back, even nudging 700p. Then came the ragged retreat, all the way to 293.25p. Last year they suffered the indignity of claiming the Footsie wooden spoon, falling more than 18 per cent. But this year the old tartan army has enjoyed a renaissance, up almost 50p at one time.

Scottish is the sole survivor of the major brewers that once dominated the drinks industry. Ironically it was actually the smallest of the seemingly imperious big six. It has striven to establish an international presence, buying, among others, Kronenbourg of France, and, through buying Hartwall of Finland, becoming a major influence in Russia and the Ukraine. But compared with other giants of the global beerage it is still small beer, representing a seemingly irresistible swallow.

Anheuser Busch of the US is the world's biggest brewer and is not renowned for takeover activity. Yet it could be tempted by Scottish's European involvement. Interbrew of Belgium, Heineken of Holland and Carlsberg of Denmark are other possible predators. Even the Diageo spirits behemoth is said to be interested. But SABMiller, the South African group, is seen as the most likely to strike..

If Scottish is forced into a merger it would probably opt for Carlsberg. The two are partners in Russia and the Ukraine (where they have suffered disappointing results) and, intriguingly, have embarked on a technical alliance in this country.

Scottish, the John Smiths bitter and Fosters lager group, needs a major international splash to grow out of the reach of its bigger rivals. Last year it misguidedly sold its pubs chain, collecting £2.5bn. Although still relatively heavily borrowed, the sale of the 1,500-strong estate provides extra ammunition for any takeover action. It paid over the odds for a stake in a Chinese brewer but resisted the temptation to pay a fancy price for Holsten, the famed German group which seems set to fall to Carlsberg.

I believe the City undermined Scottish. At a time when profits were flat it pressured the group into selling its pubs, claiming its shares would, as a focused brewer, enjoy a higher rating. Arrant nonsense. The shares remained unimpressed and takeover rumours and recovery hopes provided the recent strength.

The sacrifice of the pub encumbrance increases the possibility of a bid. Overseas brewers are not keen on retailing and would probably choke at the prospect of having to fork out £2.5bn for bricks and mortar, even if they planned to sell them on. So, it could be argued, Scottish has actually increased its vulnerability to a strike.

The brewing revival means that only two no pain, no gain shares are in the red, Wyatt, the risk consultancy that has fallen a shade below my buying price, and the long-running basket case, Profile Media.

I am not losing sleep over Wyatt, a speculative investment, where I am relying on Bob Holt, the man behind the successful Mears support services group, to work his magic. Profile is, belatedly, showing signs of recovery. With its restructuring completed the shares, although still recording a wounding loss, have edged ahead. And a mystery buyer has picked up almost a quarter of the company. Any corporate activity at the 4p or so price now prevailing will not do much to soften the pain the portfolio has suffered.