UK: Scottish & Newcastle is rumoured to be a takeover target for its rival Heineken

Shares in the UK's biggest brewer Scottish & Newcastle (S&N) have risen strongly on speculation it may be a takeover target for rival Heineken, BBC posted on March 30. Some £600m was added to the value of the Edinburgh-based brewers, Scotland's third-largest industrial company, on the back of City rumours that Dutch rival Heineken is poised to launch a takeover bid.

S&N, whose brands include Fosters and Kronenbourg, saw its shares rise a further 1% in early Friday trading after having closed up 12.1% on Thursday.

Despite the rumours, analysts were divided on whether any bid for S&N from the Dutch company would be forthcoming. Some brewing industry analysts said Edinburgh-based S&N was vulnerable to takeover as it did not have a big controlling shareholder.

But others said Heineken might be put off by the possibility that, if they make a bid, such a deal may come under close examination by competition regulators, especially in France where both companies dominate. Other commentators speculated whether Danish brewer Carlsberg would be a better fit for S&N, and that the two could potentially look to merge in the future.

The company was the fastest-rising stock on the blue-chip FTSE 100 list of leading shares, ending the day valued at £5.6bn.

The climb appears to have been partially spurred by talk of consolidation in the drinks industry at a conference in Dublin on consumer products.

Denmark-based Carlsberg, with whom S&N co-owns the giant Baltic Beverages Holding business, was also cited as a potential suitor.

S&N has no big, dominant shareholder such as Heineken, Carlsberg and Belgium-based InBev, and is periodically touted as a takeover candidate. South African giant SABMiller has also been named as a potential suitor.

A takeover of S&N would almost inevitably see a major corporate headquarters disappear from Scotland, following the company's highly symbolic closure of its historic Fountainbridge brewery in Edinburgh in mid-2005. S&N later moved its headquarters from Murrayfield to St Andrew Square in the centre of the city.

Next month S&N will become the second-biggest industrial - behind Scottish & Southern Energy - assuming that Spanish energy giant Iberdrola completes its takeover of Glasgow-based ScottishPower. ScottishPower shareholders meet in Glasgow today to vote on that deal at an extraordinary general meeting which is expected to be a formality. Drinks industry analysts suggested that Amsterdam-based Heineken could face competition problems with a bid for S&N, given overlaps in the French and Russian beer markets.

Carlsberg, meanwhile, might be deterred from lodging a bid when at some time in the future it might obtain a friendly merger with S&N on favourable terms.

A consortium bid would also be difficult, given intense rivalry in the brewing industry.

The dramatic rise in S&N's share price also needs to be put into context. In February more than £200m was wiped off the company's market value in one day after the brewer warned that a UK-wide smoking ban will slash 2007 profits by £10m.

S&N said then that it is also considering job cuts, after announcing a further £50m of planned cost savings over the next three years. The company said the savings will be split equally between its international operations and the UK, where it employs 4500.

Some of S&N's other well known brands include Newcastle Brown Ale, John Smith's, and cider Strongbow.

Last month it said it was looking to make £50m of cost savings over the next three years. The announcement came as it announced that its 2006 pre-tax profits were up 14% to £452m.

S&N's shares stood at 600.5p in early Friday trading. Heineken's stock was down 1% after ending up 2.4% on Thursday.

S&N and Heineken declined to comment.

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