UK: Carlsberg professors prepared to bid for S&N

The five professors who run Carlsberg are preparing to bid for Scottish & Newcastle Plc, safe in the knowledge that there can be no counter offer from the British brewer or from anywhere else, Reuters reported June 28.

The heads of the company told Reuters this week that a big deal was in the offing, and analysts say the Copenhagen-based brewer has its long-term partner Scottish & Newcastle Plc (SCTN.L) in its sights.

The British group has a higher market value, but the professors have the firepower to succeed.

A combination of Carlsberg and S&N, the world's fifth and sixth largest brewers in volume terms, would challenge Amsterdam-based Heineken (HEIN.AS) for fourth spot in the brewing world and close the gap on global leaders InBev, SABMiller and Anheuser-Busch.

Carlsberg, which proclaims its brew is "probably the best beer in the world," would be taking over Britain's last big brewer in a move that would lead to an accelerated rate of brewery closures across western Europe, analysts said.

Carlsberg's eponymous brand and its Tuborg and Holsten beers would be joining forces with S&N's European ownership of Foster's and its Kronenbourg French beers. The combination would be the number one brewer in Britain, France, Russia and the Nordic countries.

It would also simplify the ownership structure of the two groups' joint venture Baltic Beverages Holding (BBH) which controls over one third of one of the world's biggest and fastest-growing beer markets; Russia.

The catalyst for a possible move came with a change last month in the statute of the Danish group's controlling shareholder, The Carlsberg Foundation charity, which will allow Carlsberg to double its equity and debt to give it up to a $12.7 billion war chest for acquisition.

This capital raising of up to 50 billion Danish crowns in equity and 20 billion crowns in debt just about tops the market value of S&N, currently valued at 6.1 billion pounds ($12.2 billion).

Unfortunately for Edinburgh-based S&N, it stands no chance of turning the tables with a counter bid because the Foundation has 51 percent of the brewer's votes, and its key principle is to prevent any hostile bids for Carlsberg.

The five Danish professors who run the Carlsberg Foundation and sit on the brewer's board form part of an arrangement dating back to 1876 with professor of pharmaceutical research Povl Krogsgaard-Larsen chairing both the Foundation and the brewer.

Carlsberg's founder, J.C. Jacobsen, set up the Foundation to direct brewery profits to support scientific research, and later the arts, to be run by five trustees elected by and from the Royal Danish Academy of Sciences and Letters.

After a major fall-out with his son Carl, after whom the brewing company is named, Jacobsen left his brewery to the charitable Foundation when he died in 1887.

"The principle function of the Foundation is to protect the brewery from unfriendly bids," said Carlsberg chairman Krogsgaard-Larsen in an interview earlier this week.

After nearly two years of talks, the Foundation surprised stock markets in April by saying it would allow its 51 percent shareholding to drop to "more than" 25 percent, but through a complex structure would keeping its voting rights at 51 percent.

The statute change was rubber-stamped by the Danish Ministry of Justice in May, and Krogsgaard-Larsen believes a big acquisition is now likely as Carlsberg needs to expand.

"A major deal is likely. Carlsberg has the strength to become bigger," he said in an interview earlier this week.

For analysts this means only one thing:

"Given the almost complete lack of alternative conceivable major deals we see this as akin to announcing Carlsberg's intention to pursue to a deal with Scottish and Newcastle," broker Cazenove said in a note after Reuters' Tuesday interview.

Although Krogsgaard-Larsen received a setback last week with the resignation of Chief Executive Nils Smedegaard Andersen, he believes a Danish replacement will be announced by the late summer and will not derail any acquisition plans.

Andersen departs in November to head Danish shipping group A.P. Moeller-Maersk (MAERSKb.CO).

Analysts say there would be big annual cost savings from a Carlsberg-S&N linkup which they estimate at 114 million pounds, while boosting Carlsberg's earnings by 20 percent, although the deal could hit regulatory snags in Britain, Portugal and Finland and it may be forced to sell-off the Foster's brand in Europe.

Krogsgaard-Larsen admits it may look puzzling having five professors on the Carlsberg board, but he hints this structure may change with a big brewing deal as it is not an obligation to have all five Foundation board members on the Carlsberg board.

"It is an unusual structure. It has been effective and fruitful, but in the future we may have to enter into a major structural change," he said.

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