Denmark: Carlsberg A/S (“Carlsberg”) announced on February 17 that it has signed an agreement to buy Orkla ASA's 40% shareholding in Carlsberg Breweries A/S (“Carlsberg Breweries”) for a total of approximately DKK 14.8 billion (the “Transaction”). On completion of the Transaction, the partnership between Carlsberg and Orkla ASA (“Orkla”) will end and Carlsberg will be the sole shareholder of Carlsberg Breweries. Completion of the Transaction is anticipated to occur no later than mid March 2004.

The Transaction is the largest single investment undertaken by Carlsberg to date and Carlsberg believes it will create significant shareholder value and improve the structure of the Carlsberg Group. The Transaction will ensure that shareholders of Carlsberg have complete ownership over their largest operational asset – Carlsberg Breweries; will provide shareholders with a more direct access to operational cash flows; will be immediately earnings enhancing (prior to the amortisation of goodwill); will enhance transparency and corporate governance for all Carlsberg shareholders across the Carlsberg Group; and will ensure best position Carlsberg Breweries to further its earnings and volume growth with a single shareholder, focussed upon the brewing industry.

Nils S. Andersen, who becomes chief executive of Carlsberg A/S, said: ”Our financial aim is the continued change of Carlsberg into an internationally competitive company producing value for its shareholders. This is a hugely important step in a process which began three years ago and has a number of years yet to run.”

“In terms of competitiveness, we are doing well. Carlsberg is now the fastest growing international brand in the world (with Tuborg not far behind). And we have built leading positions in all of our chosen markets in Northern and Eastern Europe and, through BBH, Russia. Plans for the wider developing markets in the Far East are progressing.”

“But structurally and financially, Carlsberg needs to deliver two things for its shareholders – operational transparency and better optimisation of assets and cash flows. That is what this transaction is about.”

“We are paying a 7.9 EV/EBITDA multiple for Orkla’s stake, which compares favourably to recent transactions in the sector. This deal is the logical step following the merger of the brewing interests of Carlsberg A/S and Orkla in 2000, allowing shareholders of Carlsberg to take full ownership over the merged entity Carlsberg Breweries,” Carlsberg A/S revealed.

“Our priority now will be to increase cash generation and de-leverage the business. We will seek to accomplish this through further cost efficiencies and focusing on greater cash returns from all of our operations. We have a motivated group of managers who we believe are determined to achieve the goals we have set. This is a critical step in our long term strategy of securing ownership over key assets and cash flows.”

Carlsberg and Orkla agreed to combine their brewing activities in May 2000. In February 2001, Carlsberg Breweries was established to manage these operations, with Carlsberg owning 60% of the company’s equity and Orkla holding the remaining 40% in a share merger effected without any significant premium being paid.

Carlsberg Breweries was established to achieve the critical mass necessary to make better use of its market positions and to realise synergies within production, sourcing, logistics and marketing. This was particularly important in the Russian, Swedish, Norwegian and Baltic markets, where the contribution of Orkla’s brewing activities helped to ensure that Carlsberg Breweries became the market leader. Many of the original intentions of Carlsberg in forming Carlsberg Breweries have now been achieved. The profitability of the current business has increased considerably, many of the expected synergies have been realised and Carlsberg Breweries has achieved its desired position in several markets. In addition during this period Carlsberg has divested a number of non-strategic companies and assets, such that today the Group is a focussed, global brewing company. Carlsberg believes that the future opportunities within Carlsberg Breweries will best be achieved by a single shareholder focussed upon the brewing industry.

The total purchase price for Orkla’s 40% shareholding in Carlsberg Breweries is approximately DKK 14.8 billion. At completion, the Carlsberg Group will make a cash payment to Orkla of DKK 11.0 billion, together with an additional payment of DKK 80 million to cover Orkla's expenses associated with the Transaction.

In addition, Carlsberg will pay DKK 3.8bn plus accrued interest two years from completion. At Carlsberg’s current cost of financing, this deferred payment is estimated to have a present value of approximately DKK 3.7 billion. Based on the total purchase price of DKK 14.8bn, Carlsberg will pay a gross EV/2003 EBITDA multiple of 7.9x. After deduction of minority interests, the corresponding 2003 net EV/EBITDA multiple paid is 8.6x. Orkla will be entitled to receive its share of the ordinary dividend from Carlsberg Breweries for the year ended December 2003. Orkla’s share of this dividend amounts to DKK 120 million.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .