End of an era for British brewing

08 February, 2008

Derek Pain has the word from the city on the future of s&N

Foreign brewers will account for more than 75 per cent of the British brewing industry if the takeover of Scottish & Newcastle is completed. Even if the current £7.8 billion offer from Carlsberg of Denmark and Heineken of Holland is thwarted by a counter bid, the chances are that the Foster's-to-John Smith's ­giant will still end up under overseas ownership.

Only international beer behemoths

such as Anheuser-Busch and SABMiller would appear to have the strength to out-punch the Continental

brewers - already known in the City as the "lager louts". Diageo could attempt to repel the invasion but few are banking on a wine and spirit intervention.

Although S&N has let it be known that it is keeping its door wide open, there is no sign that Carlsberg and Heineken will have to contend with a rival approach. So the way appears clear for the pair to break up what is the last largely British-owned major brewer.

Carlsberg already has 12 per cent of the British market and would run into monopoly problems if it swallowed the S&N business in this country.

Extending its operations here is not, however, on its agenda. Its desire is to get its hands on S&N's half share of Baltic Beverages Holdings, where it already has a 50 per cent interest. Operating in the former Soviet Union, BBH is probably the fastest-growing brewer in the world.

Heineken will take over the UK operations. As Britain's biggest brewer, S&N has at least 25 per cent of the market. Heineken's current involvement is tiny, probably less than 1 per cent.

So Whitehall regulators will have little, if any, interest in the deal that will catapult the Dutch brewer into the top beer position. In one swoop it will overtake Coors, the US group in second spot, and third-placed InBev, the sprawling Belgian-based group.

Redundancies

The Scottish break-up will undoubtedly lead to heavy redundancies among the administrative and clerical staff. For one thing, the resources to run an international operation will no longer be needed.

And will Heineken want all the brands now in its wide portfolio? There must be a possibility that at least some ales will be sold. Already, other brewers are exploring the possibility of buying unwanted brands - Marston's has hinted it might be interested.

Certainly John Smith's, the major Scottish bitter, would be an enticing acquisition for the likes of Marston's and Greene King with their extensive distribution networks. Both have been busy buying smaller regionals in recent years and once S&N disappears will emerge as Britain's leading home-owned brewers.

Heineken could also ponder the retention of the famed Newcastle Brown Ale. Dealing with the iconic beer could present problems for a group steeped in lager. Although it is accustomed to local brands there is a feeling it may not be comfortable with the pride of Geordieland.

Question marks

Even the S&N lager portfolio could be plundered. After all, Heineken once had the now departed Whitbread brewing group producing its lager under licence. If it hopes to regain the high selling spot it once enjoyed in the UK it could be tempted to put much of its production through S&N,

squeezing other lines. Kronenbourg could be a casualty

- even Foster's, Britain's second

biggest selling lager, could be threatened as S&N does not have worldwide ownership, a factor that could irritate the Dutch.

Other question marks must hang over the future of the WaverleyTBS drinks wholesaling group and S&N's relationship with small brewers, such as Caledonian

of Edinburgh. Its 2,000 leased pub chain must also be under threat. And what about Bulmers, Britain's leading cidermaker, which, under S&N's command, has staged a strong comeback after ­suffering at the hands of Magners, the cider produced by Irish group C&C?

International

But amid all the speculation it must be remembered that Heineken is a top class and very shrewd company that is at the forefront of the international brewing fraternity. Pre-bid deliberations may have convinced it to retain its entire inheritance. True, parts may be sold.

But it is likely to hang on to most of its winnings and anyone expecting some cheap pickings of rich assets will be disappointed.

At one time, Britain appeared set to play a major role in the consolidation of the world brewing industry. The feared big six - Allied Domecq, Bass, Courage, Grand Metropolitan, Scottish and Whitbread - seemed impregnable and any one of them would have seen off overseas marauders. But government interference dramatically weakened them.

Consequently they fell to overseas bids with S&N the sole survivor.

Ranked seventh in the world beer league, S&N attempted to become a world player, venturing into the former Soviet Union, India , China and much of western Europe. But it failed to clinch the transformational deal that would have allowed it to hold its own in the tough, no-holds-barred world of beer. Indeed, its international spread - in particular BBH - provoked the current takeover action.

And unlike Carlsberg and Heineken it could not count on the support of major shareholders. Its shares are widely spread with only relatively small holdings. Consequently, when a bid appeared, the only serious argument was over price. The 800p a share offer (increased from an initial 720p) is adequate but not top dollar. There is, therefore, just a chance that a new bidder could acquire a taste for Scottish.




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