Glenboden M & A Originations

Carlsberg and Heineken succeed in acquiring S&N with a revised valuation that’s still cheap

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Origination Status recommended group merger offer, January 2008
Asset Scottish & Newcastle plc (UK), global no. 7 beer producer
Buyer Carlsberg A/S (Denmark), global no. 5 beer producer, together with Heineken NV (Holland), global no.4 beer producer
Seller shareholders of Scottish & Newcastle plc
Buyer Rationale Carlsberg to gain market leadership in Russia and France, Heineken in UK
Seller Rationale acceptable upwardly –revised valuation
NBs recommended offer is still below most appropriate comparable; that of SABMiller - Grolsch
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So what would have been a high enough valuation for S&N ? We believe that, when looking for a comparable transaction, one should find the most applicable deals, even if that means choosing just one deal, rather than take the average of a range of deals. It’s just like valuing a house, by reference to how much the neighbouring one went for, earlier in the year, rather than taking an average from sales in the whole area over the last five years.

That’s not so easy, in this case, because the last major beer consolidation, namely SAB’s acquisition of Miller, occurred five years ago and Miller was only really global in scale. Yes, there have been two global consolidations in the ‘adjacent’ business of tobacco, in the last year, but tobacco doesn’t have the same growth and innovation profile of beer.

In our view, the acceptable offer should be at least at the same level as in SABMiller’s very recent acquisition of Grolsch, namely x16 EBITDA. We say ‘at least’, because the quality of S&N’s diverse earnings is far higher than that of little Grolsch’s. The former is a global brewer with a portfolio of leading brands in at lest three geographies; the latter is only no.2 in its domestic market, with a very limited international presence.

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Size (€ mln) 14.550
Sector brewing
Asset Quality global no.7 branded
Seller large plc
Buyer large plc
P/S 2,5
P/Ebitda 14,3
Type enterprise value
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