Scottish & Newcastle Sale?

At the end of a week of heightened speculation about M&A moves in the drinks sector, broker Dresdner Kleinwort has said that Scottish & Newcastle, Britain's biggest independent beer maker, is the “most likely bid target” amongst beverages makers.

The chatter was sparked on Tuesday, June 26, when Carlsberg's chief executive Nils Andersen said the Danish brewer had access to as much as Gbp6.3bn (US$12.5bn) for making acquisitions.

However, he also stated that Carlsberg has no formal intention to hit the acquisition trail at present while noting that the company now has the opportunity to make large-scale deals.

Despite this Dresdner Kleinwort beverages team, led by analyst Andrew Holland, said: “We put a 70% probability on an acquisition of S&N by Carlsberg. There is strong industrial logic in putting S&N's and Carlsberg's businesses together.”

The team estimated that such a deal could produce “gross synergies of an estimated Gbp132m” and said that “a bigger balance sheet would make subsequent acquisitions easier” adding that “Both managements have acknowledged the logic of a deal in the past.”

However, the most important catalyst for an approach to S&N is because Carlsberg does not want to lost its 50% stake in the duo's joint venture BBH. If S&N tried to buy out its partner then Carlsberg could be forced into paying a higher price than if it made the first move.

The broker values S&N at 715p a share, or an enterprise value of Gbp9.3bn (US$18.2bn). That is roughly 12.1 times EBITDA. However, the group has a sizeable pension fund deficit and Carlsberg might have to pay 35p a share more to clear this, says Dresdner.

However, a director has sold shares at 649.15p it was revealed today. This might make a bid approach unlikely in the short term.