Third Time is the Charm for Carlsberg and Heineken

By Jason Simpkins
Associate Editor

Carlsberg A/S and Heineken NV agreed to buy Scottish & New Castle Plc last week for $15.4 billion.  For their money both companies will establish a firm presence in emerging markets.

Carlsberg will pay 54.5% of the total cost and Heineken will pick up the remainder.  Carlsberg is paying extra for the crown jewel of S&N's assets, Baltic Beverages Holdings AB.

BBH is one of the fastest growing and most profitable breweries in the world. S&N and Carlsberg said earnings for BBH would rise 34% to 1.5 billion by 2010 as Russian demand for Baltika and Nevskoye brand beer surges.

Carlsberg is will also gain control of S&N's operations in France, Greece, Vietnam, and China.

"The acquisition will make us the world's fastest-growing brewer," Carlsberg Chief Executive Officer Jorgen Buhl Rasmussen said in a statement. The company estimates it will save approximately $256 million a year on production and distribution once the deal is finalized.

For its part Heineken gets operations in Ireland, Portugal, Finland, Belgium, India, the United Kingdom, and the United States. The company expects it will save $237 million through its acquisitions.

Global exposure comes at a cost, however, and the price tag was considerably large in this case. After being denied twice, Carlsberg and Heineken was forced to pay 800 pence a share in cash for the Edinbugh-based S&N. That's 26% more than the closing price on Oct. 16, the day before the brewers first announced their intentions to acquire S&N. The original offer was 750 pence per share.

Speculation that the two companies are overpaying for S&N has driven their stock valuations significantly.  Heineken and Carlsberg stock has dropped about 12% and 20% respectively since that time.

Heineken and Carlsberg "probably paid a little bit too much," Andy Lynch of Schroders Investment Management in London told Bloomberg News.

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