Western Europe: SABMiller scotches rumours of bid for Scottish & Newcastle

Global beer giant SABMiller said on Thursday it does not find the West European beer market attractive after it had been linked with a takeover of Scottish and Newcastle, Reuters reported April 12.

SABMiller's Chief Financial Officer Malcolm Wyman did not comment directly on Scottish and Newcastle, Britain's biggest brewer, but added that the group saw the West European beer market as "singularly unattractive" due largely to its slow volume decline. He added that the West European beer market is "not an area we find attractive" in a conference call after issuing a trading statement to cover its financial year to March 2007.

SABMiller poured cold water on speculation that it is considering a bid for Scottish and Newcastle yesterday, sending shares in Britain's biggest brewer down 2 per cent, News Independent communicated on April 13. Shares in Scottish & Newcastle have been frothing on talk that Heineken, Diageo, Carlsberg and SABMiller were all interested in making a move, and it has gained 13 per cent since the end of March.

The comments came as SABMiller, which brews Miller Lite and Peroni, said lager volumes grew 23 per cent globally in the year to the end of March, with organic growth at 10 per cent.

Shares in SABMiller, the world's second biggest brewer, closed the day 3 per cent ahead with a gain of 29p to 1148p. Its shares have dipped from a January high of 12.48p after it lost the licence to brew Amstel beer in South Africa last month.

Scottish & Newcastle shares fell 12.5p to 586p yesterday after rising above £6 at the end of last week. SABMiller said its strong revenue growth was partly offset by higher costs for raw materials, and increased spending on marketing. The company has been investing in emerging markets as beer volumes decline in the West.

In South America, where it is investing $1.8bn (£909m) over five years following its acquisition of the Columbian brewer Bavaria, and including its operations in Peru, Ecuador and Panama, beer volumes rose 12 per cent.

In South Africa volumes rose 2 per cent, while in North America annual sales to retailers fell by 3 per cent, with Miller Lite down 1 per cent. Philip Morrisey, an analyst at Citigroup, said the trading statement "illustrates the impressive volume growth available from SABMiller's unrivalled spread of emerging market businesses".

Analysts believe a takeover of Scottish & Newcastle by any of the mooted trade bidders, or by private equity, is unlikely. Although private equity would be attracted to the strong cash flows of the brewer and the chance to break up the group, S&N is not seen as a turnaround or cost-reduction story.

Yesterday the brewer, whose brands include Fosters, Kronenbourg and Strongbow, announced it has signed a licensing agreement with Baltika Breweries to produce Baltika, Russia's top-selling beer, under licence in the UK.

Baltika is owned by Baltic Beverages Holding (BBH), which is a joint venture between S&N and the Danish brewer Carlsberg. In February, S&N posted a 13.9 per cent rise in pre-tax profits, driven by strong global growth, particularly in Russia. Pre-tax profits reached £452m for 2006, while the group saw an 8.9 per cent rise in net sales.

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