E-Malt.com News article: Europe: Analysts worried Heineken's bid for Scottish & Newcastle may cause its shares shrink

Investors are worried that Heineken's bid for Scottish & Newcastle might cause its stock to go flat, International Herald Tribune published November 21.

If the takeover is successful, Carlsberg would get Scottish & Newcastle's assets in Russia, while Heineken would get its British operations. Analysts have said Heineken shares may fall if the company moves heavily into the British beer market, which is forecast to shrink 6.2 percent by 2012.

After Heineken sat out the last wave of industry mergers in growth markets like Brazil, investors were relieved to see them back in the expansion game - as long as the target was not Scottish & Newcastle.

"If I were the company, I wouldn't have done it," said Patrick Casselman, a fund manager for KBC Asset Management in Brussels. He sold some of his Heineken shares after the company announced its plans.

The acquisition, if it goes through, will knock 2.1 percentage points off Heineken's sales growth by 2010, according to calculations based on Dresdner Kleinwort estimates.

Technical indicators that some analysts follow to predict share movements suggest Heineken stock could take a fall, too. An index tracking Heineken's relative strength, a measure of the magnitude of the stock's recent gains to its recent losses, has sent out a warning by declining through the summer and autumn even as the price of the brewer's shares kept rising. Another technical indicator, the long-term moving average of Heineken stock compared with its current price, gave a sell signal about a month ago, Bloomberg analysis shows.

"The stock may be topping out," said Mark Arbeter, chief technical strategist at Standard & Poor's in New York. He sees it falling as low as €36, or $53, down from around €44 now.

Heineken shares reached a six-year high in 2007. Still, they have risen less than 50 percent in the past five years, while shares of InBev, the world's largest brewer, and SABMiller have both almost tripled.

In the bid for Scottish & Newcastle, Carlsberg is making an emerging-market play, seeking the British company's Russian unit, Baltic Beverages Holdings, which owns the biggest share of the expanding Russian beer market.

Heineken, by contrast, will focus on a market where the beer-drinking British pubgoer is becoming less of a national stereotype as lifestyles change.

Lauren Ace is an example. When the 22-year-old publicist meets friends at Thirst, a central London bar, the last thing she wants is a lager. Instead, she orders a glass of pinot grigio or a shot, because they "leave you less bloated and ready for dancing," she said. "I used to drink a lot more beer."

Heineken, which would acquire brands including Strongbow and Kronenbourg, is also paying a steep price to fight it out in Britain. The bid is worth about £3.2 billion, or $6.6 billion, for the British assets, or at least 12 times Scottish & Newcastle's estimated British earnings before interest, taxes, depreciation and amortization this year.

InBev paid a smaller ratio - 11.7 times earnings before interest, taxes, interest, and depreciation - for Ambev in 2004 to become the biggest brewer in Latin America, while South African Breweries paid 9.3 times for Miller Brewing in the 2002 merger that created SABMiller.

Some analysts say it would still be worth it, as this may be one of Heineken's last chances to grow.

The Heineken chief executive, Jean-François van Boxmeer, who called the British market "very sluggish" in August, said last week that the company had a proven track record in creating value in mature markets.

The Dutch brewer, once the world's second-largest by sales, has dropped to No. 4 as it has been reticent to pay up for mergers. Founded in 1864 when Gerard Adriaan Heineken bought the Haystack brewery in Amsterdam, Heineken made its first international acquisition in 1927 in Brussels and has been selling beer in the United States since 1933. It is still family-controlled.


21 November, 2007