24-hour extension for Scottish & Newcastle bidders

Analysts anticipate a dawn raid after the UK takeover regulator gave Carlsberg and Heineken one more day to sort out details of their £10bn offer for the brewer.

Morningstar.co.uk Editors 24 January, 2008 | 11:39AM
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The Takeover Panel, which had previously set a "put up or shut up" deadline of midday today, said in a statement that it had made the decision following representations from the advisers to S&N, and had also consulted with the advisers to the bid consortium.

The John Smiths and Newcastle Brown maker responded by indicating that the delay was because of a problem between Carlsberg and Heineken.

"In agreeing to this extension to the deadline, the consortium has reaffirmed the price at which it is contemplating an offer is 800p per share, confirmed that its due diligence is complete, that it has reached an agreement with the trustees of the UK pension fund and that its financing is fully committed," it said. "The consortium's proposal remains subject to certain pre-conditions, including finalisation of its consortium agreement and agreement of satisfactory conditions to any offer."

Carlsberg and Heineken are said to be arguing over how European profits would be carved up - particularly between France, which the former would acquire, and the UK, which would go to the latter. Attributable profit for the French operation is thought to be higher than in Britain, putting Heineken at a disadvantage from the terms it was expecting and potentially forcing Carlsberg to increase its share of the takeout price.

There have also been doubts about whether Heineken can take over S&N's stake in an Indian joint venture shared with drinks tycoon Vijay Mallya. The Business Standard reported that Mallya, Chairman of United Breweries, could exercise his right of first refusal in order to buy out S&N’s 37.5% shareholding, or call upon other financial partners to acquire the stake.

However, today's S&N statement would appear to indicate that a dispute over BBH, the Russian joint venture it shares with Carlsberg, has been resolved. The Danish brewer had threatened legal action if S&N management sought to share internal projections with its shareholders, while S&N said Carlsberg was attempting to take control of BBH without revealing its true value to investors.

The companies are in deadlock because if the BBH projections were made public public, it would allow potential rival bidders such as Anheuser-Busch, InBev and SABMiller to decide whether they could afford a counter-offer.

Analysts therefore saw today's statement as reassuring, as any disagreements between Carlsberg and Heineken appear to be technical rather than substantial. "We expect S&N management to accept the consortium’s proposed 800p per share offer before tomorrow’s deadline and to recommend the deal tomorrow morning," Citigroup's Philip Morrisey told clients.

"It is not inconceivable that, were BBH prospects to be disclosed, the Consortium could actively seek to buy shares in the market at the proposed offer of 800p in an effort to create a blocking minority to other potential bidders," he added.

Carlsberg, which has taken the leading role in the leading the consortium bid, was yesterday forced to deny that the companies did not have funding in place. The pair have provisionally valued S&N at £10bn including debt and pension liabilities, and have indicated they will not go hostile.

Shares in S&N moved higher by 30.5p at 765.5p, a gain of 4.2%. The stock had earlier lost as much as 7% in volatile trade.

Dealers said the shares had been heavily traded by arbitrageurs and hedge funds on word that a meeting of S&N's council last night had ended without resolution.Earlier this month, the takeover regulator provided a three-day extension to its initial deadline after S&N management agreed to open its books.

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