Please email ft@mergermarket.com or call EMEA: + 44 (0)20 7059 6105 Americas: +1 212 686-5277 Asia-Pacific: +852 2158 9730 for further information on mergermarket and how to receive more articles like the one below.
--------------------------------------------------------------------------------------------------------

Carlsberg, the Danish brewery group, is likely to face antitrust challenges if it acquires listed Scottish & Newcastle (S&N), two independent Finnish competition experts said. In Finland, this could involve the sale of Hartwall, the country’s second largest brewery, which S&N acquired in 2002, other industry sources noted. Other areas of high overlap include the UK and Portugal.

Rumours linking Carlsberg and S&N have resurfaced this month, although they have not been confirmed. Carlsberg shares are up 5.5% in the last three months to DKK 713. Scottish & Newcastle is down 7% to GBP 6.02 over the same period

Should a deal emerge, it is likely that the EC would assume antitrust jurisdiction due to the size of the companies and their combined market shares, the two legal experts said. S&N had a turnover of about GBP 4bn (EUR 5.9bn) in 2006, of which 14% came from Finland. Carlsberg’s turnover in 2006 was DKK 41bn (EUR 5.5bn), but its Finnish revenues were not disclosed.

A potential deal could be approved at EC level with conditions on structural changes at the national level, the experts noted. Beer markets and brands are usually defined along national lines and competition would be tainted if two of the largest were to merge, one of the experts added. In the case of Finland, the situation would likely result in divestiture of local assets, the experts explained.

Carlsberg, which owns the local Sinebrychoff brewery, said in its 2006 annual report that it had the leading market position in Finland with 49% market share and sales of 2.1mhl including the Koff and Karhu beer brands. A company spokesperson said the market share in beers only in Finland was 35%. S&N’s website claims a market share of 40% in Finland, including Karjala and Lapin Kulta brands and non-beer items such as cider. A company spokesperson said the S&N market share for beer only in Finland was 36%.

Carlsberg reported a 54% market share in Portugal where it owns the Super Bock brand. In Portugal, S&N says it is the second largest operator with 41% market share including the Sagres brand.

In the UK, Carlsberg says it has 13% market share with Carlsberg, Tetleys and Holsten. S&N says it is the largest in the UK and Ireland with 27% market share including Kronenbourg, Fosters, John Smiths and Strongbow cider.

One industry source referred to a preceding example where the Finnish Competition Authority (FCA) reacted to Finland-based retailer SOK acquiring control of Spar Finland. The deal was subject to SOK selling 30 store locations. Prior to the acquisition, SOK had a 35% market share in Finnish daily consumer goods trade with Spar commanding 6.8%.

A problem highlighted by one legal expert would be the difficulty in finding an obvious national suitor for any of the potential targets. The expert suggested that Finnish listed Olvi, the third-largest brewery and soft drink company, was the only domestic option outside Hartwall and Sinebrychoff. A local investment banking source with previous involvement in the sector also expected the combined market share to potentially spell ”trouble” with the FCA, and noted it would not be clear who could buy any of the assets, at least beyond Olvi.

A second investment banking source, however, noted that antitrust issues are not a deal breaker because they do not materially influence the situation regarding a potential bid by Carlsberg. Likely disposals represent only a few percent of the fair value of a merged business, the source said.

Two local industry sources said that it was likely that Hartwall would be divested due to Carlsberg’s interest in keeping its own brewery, Sinebrychoff, and because Sinebrychoff has had strong results during past years. According to the 2006 annual report, Carlsberg’s market share increased in Finland, with operating profit up on 2005 results. No further figures were disclosed.

One industry source speculated that Altia, the Finnish state-owned wine and spirits company, was a potential buyer for Hartwall, and noted that Danish listed Royal Unibrew was a potential Nordic suitor. Another one concurred in terms of Unibrew, adding that the Hartwall family shareholders, previously the largest shareholders in Hartwall, could team up with private equity to make a bid for the company. Hartwall Capital, representing the shareholding, is S&N’s single largest shareholder with a 10.3% stake. The second investment banking source also suggested that the Hartwall shareholders would take a closer look at Hartwall.

The source added that Swedish brewery Spendrups may be among interested players. Jens Spendrup, MD at Spendrups, said that it had never occurred to him to look at Hartwall. He referred to the company’s turnover, saying that a potential bid was not possible. In 2005, the company had a turnover of SEK 2.1bn (EUR 224m), the Spendrups website said. In 2002, Hartwall reported a turnover of EUR 958m.

Erik Hartwall, member of the board at S&N, did not want to speculate on matters related to a potential bid from Carlsberg, as nothing had taken place to date. When prompted about whether the Hartwall shareholders could buy Hartwall should the company be for sale, he said that ”we will cross that bridge when we reach it”.

Ulrik Sorensen, Royal Unibrew CFO, said that the listed Danish company would take interest in any sensible target that would come up on the Finnish market. He explained that one of the company’s three focus areas was North Europe, and that in Scandinavia, including Finland, Royal Unibrew aimed to be the undisputed number two after Carlsberg. He noted that the company had no strong foothold in Finland at the moment.

Heikki Hortling, chairman at Olvi, said that the company would take a look at Hartwall if it was for sale. He noted that Olvi could not acquire the whole company – for one thing, competition authorities would react to such a deal as well. Olvi had a turnover of EUR 170m in 2006.

Tom Alakari, senior vice president at Altia, said the company had not considered entering the beverage market due to the differences in type of business to wine and spirits that the company specialises in.

Carlsberg and S&N declined to comment.

--------------------------------------------------------------------------------------------------------

mergermarket is an M&A intelligence tool focused on providing actionable, origination intelligence to its client base of the world’s principal advisory firms, investment banks, law firms, private equity firms and corporates. mergermarket provides clients with articles such as the one above in real-time via an online platform and personalized email, BlackBerry alerts and an online platform. For more information;

please email ft@mergermarket.com or call EMEA: + 44 (0)20 7059 6105 Americas: +1 212 686-5277 Asia-Pacific: +852 2158 9730