The ramifications of Carlsberg A/S and Heineken NV’s $15.4 billion buyout of British brewer Scottish & Newcastle are interesting.
With Carlsberg, inks deal to buy S&N for $15.4 bn. S&N has 37.5% in United Breweries
MUMBAI: The ramifications of Carlsberg A/S and Heineken NV’s $15.4 billion buyout of British brewer Scottish & Newcastle (S&N) are interesting.
S&N is the co-promoter of United Breweries, India’s largest beer manufacturer, holding a 37.5% stake in the venture.
The Vijay Mallya-controlled UB group holds an equal stake in the venture.
Under the acquisition terms, the Indian assets of S&N would accrue to Heineken.
With a change in the S&N promoter profile, an open offer could get triggered.
“If Heineken makes an open offer, then its stake in the company would rise and subsequently, Mallya might have to cede management control,” said an analyst with a local brokerage who can’t be quoted due to compliance reasons.
Heineken, by making an open offer, or announcing an intention, can bring Mallya to the negotiating table
But it would be in Heineken’s interest to ally with Mallya in a market it doesn’t know.
Moreover, Mallya controls a significant portion of the distribution channels because of its product portfolio
Carlsberg will get S&N’s interests in Russia, France, Greece, China and Vietnam.
Besides India, Heineken will also get S&N’s British business along with its operations in other European markets such as Belgium, Portugal and Ireland, plus its United States operations.
Carlsberg and Heineken are splitting the costs of the deal in a ratio of 54:46.
“There are circumstances under which open offers do not get triggered. Prima facie this appears to be one such a case. However, if it does, we would take appropriate measures to protect our interest. We would not like to lose management control or our stake in United Breweries,” Ravi Nedungadi, president & chief financial officer, UB group, told DNA Money.
Nedungadi said he didn’t believe Heineken would launch a hostile bid for control.
“While the UB group has had an excellent and productive relationship with S&N during the period of the association, we welcome the fact that Heineken will be associated and be a potential shareholder of United Breweries on terms that are yet to be discussed and agreed,” Vijay Mallya, chairman, UB group said.
The Indian beer market is heavily polarised by two large player —- United Breweries, with close to 50% market share, followed by SAB Miller with 40% market share.
“By buying S&N, Heineken would enter India, a market where it is not present currently. It would bring in premium brands,” said another analyst with a foreign brokerage.
Premium beer is a small market with brands such as Kingfisher Ultra (from United Breweries) ruling the roost.
“Heineken is one of the world’s leading beer brands and there is great potential for combining the strengths of the two companies to participate in the exciting future of the Indian beer market,” Mallya said.
Some market watchers believe there could be some interesting turn of events. Technically, Mallya has the first right of refusal if S&N wishes to exit United Breweries.
It is not clear how the acquisition of a parent would be treated and if Mallya will insist on acquiring S&N’s stake.
“We believe it would be important for Mallya to exercise the option of right of first refusal, because, if any foreign entity buys 37.5% stake from S&N, it would trigger an open offer and therefore Mallya may have to give away management control in its flagship company,” brokerage house IDFC SSKI said in a recent note.
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