Carlsberg told to put up or shut up on S&N

Carlsberg and Heineken must make a formal bid for Britain's largest brewer inside a month or walk away, the Takeover Panel said

Morningstar.co.uk Editors 17 December, 2007 | 4:52PM
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The consortium must announce “a firm intention to make an offer” by midday on by January 21 or else say it does not intend to bid, the regulator said in a statement.

Carlsberg and Heineken, the largest brewers in Denmark and Holland respectively, revealed they were in talks to buy S&N in October. They offered 750p a share in November, valuing the brewer of Foster's, Kronenbourg and Newcastle Brown Ale at £7.3bn. S&N rejected that approach as "wholly inadequate" and has refused to meet the bidding consortium.

The Edinburgh-based group, which approached the Takeover Panel to try and force a resolution, said the move would bring the long period of uncertainty to an end. Carlsberg also welcomed the deadline, and again urged S&N management to engage in talks.

Advisors to the Danish-Dutch consortium say it is not keen on turning hostile, as it wants to carry out due diligence before making a formal offer. Under the current proposal, Carlsberg would take full control of Baltic Beverage Holdings, its Russian joint venture with S&N while Heineken would take the British operations.

HEMSCOTT’S VERDICT: Carlsberg would like you to believe it's prepared to fold. Chances are, it's a bluff. To walk away now would be a huge gamble on whether it can protect its prize asset, the 50% stake in the BBH joint venture.

The Swedish arbitrator is due to make a decision early next year on a claim by S&N that it has first option to buy out Carlsberg's 50% stake in BBH. No matter how sure the Danish group is that it is in the right, it simply cannot afford to lose that ruling. Moreover, its own share price has been put into tailspin by fears of dilution to pay for a deal.

Stalling for time will not work. A resolution has to come soon.

Despite its reticence, making a hostile bid looks to be Carlsberg's safest option. Adding less than 50p to its existing offer would probably be enough to win over the hedge funds and arbitrageurs now dominating S&N's shareholder register. Meanwhile, long-term investors are already sceptical that S&N management can justify a higher valuation as an independent company.

Holders need to remember that S&N is already trading 18.5 times earnings, against 17.3 for the sector and 13.3 for the wider market. The price will collapse if Carlsberg carries through with its threat to walk, or if the Swedish arbitrator rules in S&N’s favour. Nevertheless, with the endgame looming, it's probably in investors' interests to hold their nerve a little longer.

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