Trouble brewing as Tennent's faces uncertain future

UNCERTAINTY surrounds the future of another iconic Scottish brand as speculation mounts that Tennent's might become part of a "super regional" brewery.

Drinks giant Anheuser-Busch InBev yesterday refused to rule out a sale of Scotland's best-selling lager brand, following rumours that it has lined up investment bank Lazard to hunt for potential suitors.

The business has been valued at around 100 million (86m) and, despite continuing problems in the credit markets, analysts expect strong interest from large regional brewers in particular.

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Potential bidders include Greene King, which owns brands such as the eponymous IPA and the Belhaven brewery and pubs group. Another is Marston's, the company that produces Bank's and Pedigree.

Marston's yesterday declined to comment and Greene King did not return calls, but analysts say the Tennent's brand would make a more obvious fit for a smaller regional brewer over giants such as Heineken and Carling-owner Molson Coors, which would be expected to face competition concerns in the Scottish market in particular.

Tennent's is the Scottish market leader, with an estimated 60 per cent share, putting it well ahead of Foster's and Carling. The latter has made its ambitions in Scotland very clear since it entered the market in the early part of this decade, throwing millions into sponsorship and marketing deals.

However, analysts suggest that the Competition Commission would intervene if a bid were to be made by one of Tennent's existing rivals.

Scott Wright, the editor of the industry bible Scottish Licensed Trade News, said: "Even if they had the cash or the inclination, I imagine it would be highly likely to raise competition concerns. They would probably have to offload brands that they have put a lot of energy and money into developing."

The City also questions how much appetite the big players have for further acquisitions after major consolidation in the sector over the past two years, including Heineken's 7.8 billion acquisition of Scottish & Newcastle in early 2008.

As one drinks analyst said: "Most of the big players have very full portfolios already. Although Tennent's is quite a robust little business, the margins are probably too low for them to consider. Although it would be certainly be a major step for someone like Greene King or Marston's, it would make a solid acquisition to increase their presence in Scotland."

Greene King and Marston's both have a history of making small but safe acquisitions, and they recently went to market for extra cash. Greene King raised 207m from shareholders in May. Marston's also revealed plans last month to raise 176m to fund growth, although this has been earmarked for further expansion at its pubs operation.

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Analysts say Tennent's, which has held up relatively well against the wider downturn in the beer market, could make a tempting proposition for either company, although the recent fundraisings sparked speculation that Greene King could mount a bid for Marston's.

However, the City is confident that Tennent's will attract interest, despite ongoing problems in the credit markets.

Analysts argue that the business is "robust" and is being offloaded to ease pressure on Anheuser-Busch Inbev's debt pile following its 31.8bn merger last November.

It is understood the disposal is also part of a strategy to concentrate on the Americas. The merged company recently disposed of a brewery in Korea and is scaling back its operations in central and eastern Europe. In the UK, analysts say the firm is more concerned with its Beck's and Stella Artois brands, which sell strongly south of the Border.