SABMiller drops Scottish & Newcastle interest

In response to market speculation, the brewer said it is not planning to trump the agreed offer from Carlsberg and Heineken.

Morningstar.co.uk Editors 20 February, 2008 | 2:31PM
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SABMiller said it has decided not to pursue a bid for Scottish & Newcastle, denying market speculation that it was poised to make an £8bn offer for its rival.

The Anglo-South African group said in a statement that it "undertook a preliminary evaluation" in line with its normal practice of evaluating all strategic opportunities but "decided not to take further action".

That came after the Financial Times reported on its website that a bid at 850p per share may be in the pipeline. The board of S&N, whose brands include Fosters and Newcastle Brown, agreed to a £7.8m, 800p per share break-up proposal from the Carlsberg and Heineken consortium.

That agreement, which included a break fee of 1% of the deal price, would see Carlsberg will take full control of Russian brewer Baltic Beverages Holding. S&N has a 50% stake in the venture.

In order to meet a Takeover Panel "put up or shut up" deadline, Carlsberg agreed to release BBH projections through to 2010 . Release of BBH data has been the main point of contention between the groups during the three-month takeover saga, as it was seen allowing rivals including SABMiller to gauge whether they could afford a counter-bid.

Analysts said that a higher offer was plausible, athough SABMiller may struggle to gain approval from competition authorities. In addition, the Peroni and Miller brewer would be unlikely to be satisfied taking only partial control of BBH, they said.

"The Carlsberg/Heineken consortium is able to generate more synergies than any other potential buyer, and has offered to pay a full price which reflects this. Only Anheuser Busch is a viable rival bidder, and we doubt whether it has the ambition (and indeed the shareholder support) to enter the bidding at this stage, and at this price," Cazenove commented ahead of the rumour.

The broker downgraded S&N to "underperform" on February 4, and repeated the rating yesterday following S&N's full-year results.

Nevertheless, investors have never competely ruled out the chance of a counter-bid. To the surprise of many, Carlsberg did not move to build a blocking stake in S&N during the weeks after agreeing the deal.

Meanwhile, some shareholders are believed to have felt short-changed as the consortium unexpectedly revealed that it would not be paying S&N's dividend for the year ending 2007. The brewer paid a 21.31p dividend in 2006 and had been forecast to pay out between 22p and 27p on last year's earnings.

Shares in SABMiller were down 4.7% to 1085p, while S&N rose 2.3% to 806p.

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