Carlsbergâs new warchest too big for anything except Scottish & Newcastle bid
- August 22, 2007
||strategic announcements about bolt-on acquisitions and mergers; August 2007;
||candidates include Scottish & Newcastle, Royal Unibrew, numerous add-ons;
||Carlsberg A/S (Denmark), global no. 5 beer producer;
||shareholders of respective companies and businesses;
||expansion in existing core markets or increasing global share;
||Carlsberg management announced bolt-on acquisition strategy in March, but in June the Foundationâs management disclosed plans for a larger merger.
With other beer majors busily making add-on acquisitions in key geographies like central Europe and China, whatâs holding things up at Carlsberg? Analysts have attributed Carlsbergâs inactivity to capital constraints, caused by the Carlsberg Foundationâs charterâs requirement that it retains at least 51% of the companyâs shares, a requirement that only recently has been changed. The capital raising envisaged by the newly âliberated Carlsberg is reported to be in the region of âŹ 10 bln. That would be far too big to signal only a bolt-on acquisition strategy only; too big also for the acquisition of Royal Unibrew; only a bid for Scottish & Newcastle would soak up so much cash.
âBolt-on acquisitionsâ are relatively small deals, in markets where the buyer already has a significant presence, but wants to increase market share by a few percentage points, or acquire new brands or capacity, or squeeze out more cost synergies.
By these criteria, SABMiller is going like a train. Less than a month ago, the group announced the acquisition of Browar Belgia in Poland. More recently it announced as many as four simultaneous bolt-ons in China (in Liaoning, Anhul and Hunan provinces).
Then thereâs Heineken, who recently made a significant bolt-on acquisition in the Czech Republic, that of Krusevice. Not to mention Royal Unibrew, Carlsbergâs regional competitor, who in February acquired ĹomĹźa in Poland, and earlier this month acquired Livu Alus in Latvia. Carlsberg clearly is not playing in that particular game.
For a while, Glenboden tipped Carlsberg to buy Royal Unibrew, which technically meets the definition of âbolt-on acquisition in existing marketsâ, being focused on the Nordic countries and eastern Europe, while at the same time being of sufficient scale to be high on Carlsbergâs corporate wish-list.
But we have to admit that, in the light of subsequent information, even Unibrew is too small, with a likely valuation of possibly âŹ 2 bln, given the size of Carlsbergâs expected war-chest. So, Scottish & Newcastle now stands out as the prime candidate.
Thereâs been talk of Carlsberg only buying out S&Nâs half of the two groupsâ Baltika JV in Russia. But it would arguably be cheaper, and even simpler given how JV agreements are often drafted, for Carlsberg to just buy the whole of S&N plc.
Baltika, no. 1 beer brand in Russia, with a staggering 35% growth rate and 30% EBITDA margin, might well command a valuation of even 50% of that of S&N, especially given recent precedents in Russian M&A. Amazing, when one considers that the cca. 45% of Baltikaâs revenues âattributableâ to S&N make up only 20% of S&Nâs total sales.
At the end of the day, the big consolidation story is irresistible, and consistent with M&A trends in an âadjacentâ food sector. Carlsberg, global no. 5, merges with S&N, no. 6, to challenge Heineken for the no. 4 spot, and exploit major synergies in western Europe. Itâs a story with close recent precedents in the tobacco industry â Imperialâs bid for Altadis, and JTIâs acquisition of Gallaher.