Is anyone not filled with dread at this dragging on to July 3?
Tuesday saw the next pigeon-step en route to arbitration in Stockholm this summer, as Scottish & Newcastle started to lay out its case against Carlsberg, its 50-50 partner in the BBH Russian joint venture.
The Danish brewer, said S&N, had “misused confidential information, has breached its duty of loyalty and other express provisions in the agreement, had circumvented the ‘shotgun’ and its actions will damage the joint venture.”
The ‘shotgun’ clause was one that laid out how one of the BBH partners could voluntarily exit the venture – and , says S&N, provided that one party could buy the other out in the case of a “material breach of contract.”
The egregious-sounding infractions resulted from Carlsberg teaming up with Heineken last year to make an informal pitch of 750p a share for S&N – motivated by the prospect of getting their collective mitts on the lucrative Russian business. A point of conflict, notes Lex on Tuesday, is that Carlsberg has thus far refused to allow S&N to make public management expectations for BBH, which would help shareholders assess the bid’s value.
The takeover approach is now subject to a January 21 “put up or shut up” deadline imposed by the Takeover Panel, and withdrawal by S&N’s pair of suitors would leave the British brewer reliant on the outcome of the lengthy arbitration process, seeking the right to acquire Carlsberg’s 50 per cent stake in BBH.
As chief executive John Dunsmore put it in Tuesday’s statement, that presents a “huge opportunity” for S&N – and the brewer would seek to bring in a new minority investor in BBH of up to 25 per cent. The flipside is the risk of being left shorn of its prize asset with a business overly exposed to mature and ailing beer markets.
S&N’s Tuesday pitch contained information from Ernst & Young as to the value of BBH. They have signed off on S&N’s estimate of £100m of annual cost savings and revenue benefits to S&N from taking full control of BBH.
The figure arises from an estimated £80m in cost savings on the combined £4bn cost base of the businesses in 2006, with £70m of that coming out of the Russian business. The always-elusive revenue synergies of £20m are forecast to come from upping prices in the premium and top-end sections of BBH’s business, with no planned uplift in volumes.
So now we wait. The question is how queasy equity markets and weaker beer consumption in Europe will have affected Carlsberg and Heineken’s appetite for an increased bid before January 21 – and to what extent the same factors have increased the pressure for S&N to be more pliable in its response.