Carlsberg to up bid to try and clinch S&N -sources
By David Jones
LONDON Jan 14 (Reuters) - Carlsberg and Heineken are set this week to come up with a bid of 800 pence a share or more for Scottish & Newcastle in a deal the Danish brewer cannot afford to walk away from, sources close to the deal said on Monday.
The bidding consortium may use a promise of paying Scottish and Newcastle's (S&N) SCTN.L forecast final dividend to smooth over the bitter takeover fight and seal an 800p deal that values Britain's biggest brewer at 7.8 billion pounds ($15.3 billion).
The spat has centred over Carlsberg's and S&N's 50-50 venture, the fast growing Russia-based Baltic Beverages Holding
(BBH). The Edinburgh-based group has rounded on Carlsberg with plans to try to wrest control of BBH from the Copenhagen brewer.
"Carlsberg simply cannot walk away and risk losing BBH. It has to pay up this week," one of the sources said.
Last week, S&N rejected a third cash bid from Carlsberg (CARLb.CO) and Heineken (HEIN.AS) at 780p a share, but the Kronenbourg and Foster's brewer said it would start talks with the two joint bidders if the price was lifted to 800p.
After the bid rejection and the consortium's promise not to go hostile, the bidders have only two options -- raise their bid or walk away. The UK Takeover Panel has set a deadline of Jan. 21 for the consortium to make a formal bid or drop it.
Some sources suggest a promise of paying S&N's final 2007 dividend, expected at 15p a share, may help calm the water and allow both sides to claim a winning deal. S&N is set to announce its final payout on Feb. 19 with its 2007 results.
"Carlsberg could offer to pay say 790p and promise the final dividend to S&N shareholders as a way of hammering out an agreement," another source said.
Earlier, S&N rushed out a trading update to reassure that its 2007 trading was in line with expectations as its latest card to play in the bid battle ahead of trading updates this week by Britain's two largest pub groups Punch Taverns Plc (PUB.L) and Enterprise Inns Plc (ETI.L).
S&N shares were up 0.3 percent at 737p by 1445 GMT in a London market up 0.4 percent. Carlsberg was off 2.7 percent at 617 crowns and Heineken down 0.5 percent at 40.96 euros.
"LITTLE OPTION" BUT TO RAISE BID
Analyst Philip Morrisey at Citigroup said Carlsberg appeared to have little option other than to raise its bid. "We expect a bid of around 800p or slightly higher," he said.
Valuing BBH at 25 times its forecast 2007 earnings before interest and tax (EBIT) -- a similar multiple to that paid for "trophy" assets such as China's Harbin by Anheuser-Busch (BUD.N) in 2004 and for Vienna-based BBAG by Heineken in 2002 -- implies a values of around 810p a S&N share, he said.
The current 780p bid on the table values a 50 percent stake in BBH at 4.2 billion pounds including debt, while sources say S&N values the stake at 4.6 billion pounds which is the amount at which S&N would try and buy Carlsberg out of BBH, and puts a value on S&N shares at 817p.
Analysts say Carlsberg cannot walk away from the bid as S&N has initiated court proceedings against the Danish brewer, claiming the bid breached their BBH agreement and that it should be offered Carlsberg's 50 percent stake in BBH. The result of this arbitration case is due by July 3.
S&N could trigger the BBH shotgun clause this week to try and buy out BBH, but the sources said S&N was inclined to stress its options after the July arbitration date rather than the riskier move of immediately firing the shotgun.
Under the shotgun clause, either party can offer to buy out the other at any time. The second party must then either meet the price and take control itself, or accept the offer.
If S&N wins the arbitration, it will look to buy out BBH with support from Blackstone (BX.N) and Texas Pacific Group and if it loses it can trigger the shotgun at 4.6 billion pounds and either take control of BBH or sell out to Carlsberg and give out a bumper payout to its shareholders, the sources said.
S&N shares currently trade on 20.9 times 2007 forecast earnings, above Carlsberg's 20.1 and Heineken's 17.6, and also the world's biggest brewer InBev INTB.BR at 18.6 times, according to Reuters Estimates.
($1=.5099 Pound)
(Editing by Elizabeth Fullerton)
((david.jones@reuters.com ; +44 20 7542 7972; Reuters Messaging: david.jones.reuters.com@reuters.net)) Keywords: SCOTTISH&NEWCASTLE BID/ Keywords: SCOTTISH&NEWCASTLE BID/ =2 Keywords: SCOTTISH&NEWCASTLE BID/ =3
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