S&N says has robust case to take control of BBH

By Gelu Sulugiuc and David Jones

COPENHAGEN/LONDON (Reuters) - Scottish & Newcastle Plc (S&N) on Friday raised the pressure on bidder Carlsberg, saying it had breached their Baltic Beverages Holding (BBH) agreement and that it was confident it could turn the tables and buy the Danish brewer out of BBH.

The dispute arose when Carlsberg joined forces with Dutch brewer Heineken to bid for Britain's biggest brewer S&N, a move which the Edinburgh-based group said broke the 50-50 partnership agreement in their valuable Russia-based BBH.

S&N said Carlsberg had breached the agreement in making its bid due to the misuse of confidential BBH information and had also breached a loyalty undertaking, in a move to circumvent BBH's "shotgun" provision.

S&N, brewer of Foster's, Kronenbourg and Newcastle Brown Ale, says the Carlsberg-Heineken offer has triggered the shotgun that allows either party in BBH to buy out the other, and it is taking Carlsberg to court to wrest full control of BBH.

S&N believes it can create value for its shareholders by controlling BBH, and says it has a robust case in its arbitration proceedings to gain the right to acquire Carlsberg's 50 percent stake in BBH at fair value.

"We're very confident in the position we're taking," S&N Chief Executive John Dunsmore said after a presentation to analysts in Copenhagen. "We're in consultations with our shareholders all the time. We make decisions based on what we think is going to create value for shareholders."

Last week, Carlsberg and Heineken raised their proposed bid to 750 pence a share from last month's 720p opening bid, valuing S&N at 7.3 billion pounds ($15.1 billion), and the bidding consortium is pressing S&N to conduct talks about their offer.

COURT IN SWEDEN

However, Dunsmore said no formal talks have yet been held with Carlsberg and Heineken and reiterated that the bid undervalues S&N's stake in BBH, which operates in the rapidly growing beer markets of the former Soviet Union.

BBH is seen as the jewel in the crown for both S&N and Carlsberg as it controls over 85 percent of Baltika, the biggest brewer in Russia, the world's third-largest beer market, and makes a third of S&N's and Carlsberg's profits.

The BBH agreement is confidential and drafted under Swedish law, and a court there is likely to take until June or July next year to rule on the dispute, S&N's Dunsmore said, although Carlsberg said it may take even longer.

"Our impression from Sweden is that the arbitration case will take nine to 18 months," Carlsberg Chief Executive Jorgen Buhl Rasmussen told Reuters.

"The falling share prices have strengthened our bid. I hope that shareholders will continue to put pressure on S&N to start a dialogue," he added.

S&N shares edged up 1 percent to 731-1/2p by 1355 GMT, but were still below the 750p cash bid price.

Carlsberg shares, under pressure since it announced its interest in S&N in mid-October since a successful bid would involve a rights issue, were 1.6 percent higher at 623 crowns, while Heineken shares were down 1.1 percent to 42.81 euros.