CIS: Scottish & Newcastle to acquire the Foster’s brand in Europe

Scottish & Newcastle plc (“S&N” or the “Group”) announces that it has agreed to acquire the Foster’s brand in Europe (including Turkey), the Russian Federation and other countries in the Commonwealth of Independent States (“CIS”) from Foster’s Group Limited (“FGL”) for approximately £309 million payable in cash on completion (the “Acquisition”). The Acquisition is conditional only on regulatory clearance under Australia’s Foreign Acquisitions and Takeover Act 1975.

Background and rationale. In 1995, S&N acquired from FGL the licence to brew, package and market Foster’s in the UK, the Republic of Ireland and Continental Europe (including the Russian Federation and certain other Eastern European countries of the CIS). However, ownership of the Foster’s brands and associated rights remained with FGL. Sales of Foster’s in these territories have grown considerably under S&N’s management and the brands accounted for some 14 per cent. of S&N’s total sales (by volume) in the year ended 31 December 2005. Pursuant to the terms of the 1995 agreement, S&N was obliged to pay FGL annual royalties from sales of Foster’s as well as support the brands with a minimum contractual marketing spend. In the year ended 31 December 2005, royalty payments amounted to £15 million.

Foster’s worldwide volumes amounted to approximately 9 million hectolitres in 2005. S&N is responsible for approximately 82 per cent. of the total worldwide sales of Foster’s by volume, the majority of which is sold in the UK (approximately 7 million hectolitres). In the last three years, sales growth by volume has averaged 6 per cent. in the UK and 15 per cent. in Continental Europe (including the Russian Federation), outperforming overall beer sales in both these markets.

Following the Acquisition, S&N will gain outright ownership and control of the existing Foster’s brands (Foster’s Draught, Foster’s Export, Foster’s Ice) and any new Foster’s brands in those territories originally covered under the 1995 agreement. This will allow the Group to optimise the brands’ positioning as well as exploit fully their development potential in these territories and thus ensure that the current strong sales momentum can be maintained. The Acquisition is in line with the Group’s long-term strategic objective of controlling its core brands thus enabling the Group to invest in the brands to the benefit of S&N’s shareholders.

S&N continues to refine the Group’s brand portfolio towards those core premium brands which are expected to deliver superior growth and returns. Ownership and control of the Foster’s brands in the Group’s core markets is critical to realise their full potential in terms of marketing, packaging and new product development. In this regard, S&N is planning to develop a number of exciting brand initiatives.

In addition to the territories covered in the 1995 agreement, S&N will acquire the Foster’s brands in Turkey and certain countries in the CIS (including Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan). The acquisition of the Foster’s brands in Turkey provides S&N with the opportunity to develop a commercial partnership with Anadolu Efes which licenses the Foster’s brands in Turkey. These new territories offer S&N exciting opportunities for growth in the medium to long term.

S&N and FGL have agreed a brand protocol to ensure that the basic integrity of the Foster’s brands is respected throughout the world. This allows full scope for each party to develop the brands commercially in their own markets while developing global brand equity.

Funding and financial effects

The consideration for the Acquisition will be financed approximately one-third from additional borrowings and two-thirds from the proceeds of an equity placing which will be announced today.

The directors of S&N expect the Acquisition to have a neutral effect on earnings per share in the current financial year and to achieve its weighted average cost of capital in 2008.

The Acquisition, which is expected to be completed during May 2006, is subject only to regulatory clearance under Australia’s Foreign Acquisitions and Takeover Act 1975.

Commenting on the Acquisition, Tony Froggatt, Chief Executive of S&N, said:

“Since 1995, S&N has enjoyed a mutually beneficial relationship with the Foster’s Group. Under S&N, sales of Foster’s products have exhibited significant growth in both the UK and Continental Europe and now represent 14% of the Group’s sales by volume.

We are delighted to have secured a deal which consolidates a core brand under our ownership in our key markets. This has significant branding and strategic benefits and provides an enhanced platform from which we expect to continue to grow the highly successful Foster’s brands to the benefit of our shareholders and consumers alike.

As an Australian, I am proud that S&N is custodian of one of Australia’s best known brands.

We look forward to continuing our relationship with Foster’s Group in relation to the Foster’s brands in the rest of the world.”

Deutsche Bank is acting as financial adviser to S&N on the Acquisition. Deutsche Bank and UBS are acting as joint corporate brokers to S&N.

There will be a conference call for analysts and institutional investors at 9.00am UK time hosted by Tony Froggatt and Ian McHoul. The dial in number from the UK is 0845 245 3471; the dial in number from outside the UK is +44 (0) 1452 542 300. The conference ID is: 7880782.

Countries included in the Acquisition

The transaction covers the trademark rights in the following territories: Albania, Andorra, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Faeroe Islands, Finland, France, Georgia, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, Ireland, Isle of Man, Italy, Jersey, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malta, Moldova, Monaco, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, San Marino, Serbia and Montenegro, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, Turkey, Turkmenistan, Ukraine, United Kingdom, Uzbekistan and Vatican City.

S&N is one of Europe’s leading brewers with strong positions in 14 countries, including leadership in three of Europe’s top six markets, the UK, France, and the Russian Federation through its BBH joint venture. It is also market leader in India with the Kingfisher brand through its joint venture with United Breweries. S&N is the leading brewer in the UK with a 27% market share, and is also the world’s largest cider maker.

S&N has three brands in Europe’s top 10 – Baltika, Foster’s and Kronenbourg - and its extensive portfolio of famous brand names includes John Smith’s, Strongbow, McEwan’s and Newcastle Brown Ale.

Foster's is a leading Australian beer brand available in more than 150 countries worldwide.

Foster’s worldwide volumes amounted to approximately 9 million hectolitres in 2005, 7 million of which were sold in the UK and further 0.4 million in the rest of Europe through S&N. In the UK, Foster’s is the second biggest selling lager, accounting for one in every four pints of draught standard lager sold.

In the last three years, Foster’s sales growth by volume has averaged 6 per cent. in the UK and 15 per cent. in Continental Europe (including the Russian Federation), outperforming overall beer sales in both these markets.

Deutsche Bank AG, London Branch (“Deutsche Bank”) (authorised by Bundersanstalt für Finanzdienstleistungsaufsicht (BaFin) and by the Financial Services Authority), which is regulated by the Financial Services Authority for the conduct of UK business and is a member of the London Stock Exchange, is acting as financial adviser to S&N in connection with the Acquisition and as joint corporate broker to S&N in relation to the placing, and no-one else, and will not be responsible to anyone other than S&N for providing the protections afforded to clients of Deutsche Bank nor for providing advice in relation to the Acquisition or the placing or any other matter referred to in this announcement.

UBS Limited (“UBS”) is acting as joint corporate broker to S&N in connection with the placing, and no-one else, and will not be responsible to anyone other than S&N for providing the protections afforded to its clients nor for providing advice in relation to the placing or any other matter referred to in this announcement.

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