E-Malt.com News article: 1658

Scottish & Newcastle can now focus on its global brewing operations, and also gains a useful cash pile, Datamonitor reported in a statement. For now, the group will focus on small 'bolt-on' acquisitions of local and niche players while investing in developing its existing brands. In the longer term, however, S&N will find it hard to avoid further major M&A activity.

UK brewer Scottish & Newcastle (S&N) has agreed to sell its retail business to venture capital-backed Spirit Group. S&N will sell its 1,400 pubs, restaurants and hotels, and will receive GBP2.51 billion ($4.17 billion) in cash. The new owner will continue buying beer from S&N for the next seven years.

The deal is good news for S&N, which is the last top-tier UK brewer to sell off its pubs. It not only raises cash, but also allows the company to focus entirely on developing its beer business - in line with the strategy announced by new CEO Tony Froggatt.

In the past, S&N has made some major acquisitions - notably, France's top beer brand, Kronenbourg, and Finnish brewer Hartwall with its 50% stake in leading Russian brewer BBH. However, the group is still behind rivals such as SABMiller, Interbrew and Heineken.

Mr Froggatt has ruled out using the pubs windfall to finance any major acquisitions for now. Instead, the group is likely to look at smaller deals, like the recent acquisitions of struggling UK cider maker HP Bulmer and Portuguese brewer Sociedade Central de Cervejas. He told analysts, "we are talking about spending hundreds of millions of pounds rather than billions."
Another priority is in building S&N's brands: none of its beers is currently a top tier brand such as Heineken or Guinness. The company has had some success in establishing Newcastle Brown ale as a premium drink in the US, but it needs to improve its position in this area to maintain revenue growth. Plans to launch BBH's Baltika in the UK are a welcome step in this direction.
Yet S&N is unlikely to be able to challenge the leading players' market share through organic growth and small acquisitions alone. As the beer industry continues to consolidate, further major M&A activity is highly likely for S&N in the long term - whether the company is the buyer or the target.


10 October, 2003