S&N in the sights of rivals Heineken and Carlsberg

SHARES in Scottish & Newcastle soared 20 per cent yesterday as two major European rivals announced that they were in talks that could lead to a joint break-up bid for the company.

Heineken and Carlsberg - the latter being a joint venture partner with S&N in the successful Baltic Beverages Holdings business - said that if a successful bid was made it would probably be in cash.

They said Carlsberg would take S&N's interest in BBH including its prize Russian market, France and Greece. Heineken would get S&N's UK business and other European markets. It was unclear who would get the Scottish group's joint venture operations in India with United Breweries or those in China with the Chongquing brewery.

S&N, currently valued at about 7.2 billion on the stock market, angrily rejected the idea. It said any bid from Carlsberg and Heineken would be "unsolicited and unwelcome".

S&N, which said it had not yet received any approach from the would-be suitors, added that it believed it had a strong future as an independent company "with a combination of strong growth in emerging markets and cash generation in developed markets". One S&N director said: "We are amazed at this kind of approach from a partner like Carlsberg.

"It's quite absurd and totally incompetent on the behalf of the [consortium] partners and their financial advisors."

It is thought Carlsberg and Heineken believe their hand was forced on making the statement at the behest of the Takeover Panel, given an 8 per cent rise in S&N's share price on takeover speculation yesterday morning.

The move follows sustained speculation that a takeover of S&N, Britain's biggest brewer, was on the cards.

The company has number-one positions in Britain, France and Russia (via BBH, which also has operations in Finland, Ukraine and Kazakhstan). S&N's shares later closed up 119p or 18 per cent at 756p.

City analysts said Heineken was probably brought on board to address any competition concerns with the regulators, particularly with regard to the UK, Finland and Portugal.

Bjorn Schwartz, an analyst with Scandinavian broker Sydbank, said: "The main thing for Carlsberg is to secure full control of BBH and the question has been how they could do that in the most elegant way."

Marcel Hooijmaijers at Kepler Equities said that, based on his previous target of 700p for S&N shares, the company had an enterprise value of about 8 billion.

The businesses Carlsberg is interested in amount to 5bn, he said, leaving about 3bn for the parts Heineken wants. Hooijmaijers said he did not expect a bidding war. "Because it's a consortium, they have the financial power to do it," he said.

Matthew Webb, an analyst with JP Cazenove, said: "The fact that any bid will be made by a consortium does not necessarily improve the overall synergy opportunity and clearly somewhat reduces the scope for a competitive auction to develop. However, clearly a consortium reduces any anti-trust barriers".

Yesterday's development came after S&N announced last month that internal candidate John Dunsmore, 48, would be its new chief executive from 1 November.

That announcement was widely seen as an attempt to cool takeover speculation after news leaked that existing S&N boss Tony Froggatt was to step down early in the New Year after five years at the helm.

Dunsmore was promoted in May to run S&N's western European arm after having run UK operations for five years. At the same time another S&N veteran, John Nicolson, was made managing director of eastern Europe, Asia and the US.

City analysts said at the time of Dunsmore's latest promotion that it may have been designed to signal there was no vacuum at the top of S&N that would encourage a bid.

One analyst said at the time: "It is less likely a new chief executive would welcome a takeover bid as much as one coming to the end of their tenure might."

The potential bidders' shares also reacted well to the possibility of a deal, as investors believed any takeover of S&N would give big savings through ironing out operational duplication in various markets and extra buying power. Redundancies would be likely, analysts said.

Heineken shares at one stage were up 4.8 per cent at 48.17 and Carlsberg was 6.1 per cent higher at 803 Danish crowns.

Carlsberg has long been seen as one of the most likely suitors of S&N, given the joint venture on BBH, in recent years the star performer of the Scottish company.

In August, S&N announced profits up 5.5 per cent to 191 million on revenues of 2.1bn.