S&N moves in on the Russian beer
SCOTTISH & NEWCASTLE Breweries has struck a £1.2bn takeover deal that will give it a 50% stake in Russia's biggest brewer. It is buying the family-controlled Finnish drinks group Hartwall, which has a major Russian joint venture, BBH, with Carlsberg Breweries. BBH's Baltika beer brand is the biggest seller in Russia and is spearheading the cultural shift among drinkers away from vodka.
'The Russians, especially the young, are deciding they prefer to drink beer - they want something more refreshing. It's becoming a cultural change out there,' said S&N chairman Brian Stewart.
The deal will give S&N a share of number one positions in Finland, Lithuania, Estonia and other Eastern European countries. The Hartwall family will retain their equity in the company that was founded in 1836 and controls 45% of the Finnish beer and soft drinks market. Erik Hartwall, managing director, and BBH chairman Henrik Therman will join the board of S&N. Sales of Hartwall last year were £492.7m - 32% stronger than the previous year.
S&N has already received approvals for its deal from 83.5% of the voting rights of Hartwell. However, S&N investors were nervous about the deal, which the brewer said would dilute earnings in the first full year of its operation by a ?modest amount‘. Concerns were also raised that the BBH agreement would be only a joint venture rather than a wholly-owned S&N operation and S& N shares fell 20 1/2p to 558 1/2p.
Finance director Ian McHoul said, however, that earnings would rebound 'rapidly' from the acquisition, which would soon be enhancing for profits at the group. 'That is due to the very strong growth characteristics of the business we've acquired,' he said.
As well as being clear market leader in Russia, BBH has shares of between 45% and 49% in Estonia, Latvia and Lithuania, while the business is number three in the Ukraine, with an 18% share of the market. Hartwall's Lapin Kulta is the market leading beer for Finns. Sales in all of its territories have grown by 60% since 1998.
Stewart said S&N had decided that teaming up with an established big player in the regions was the best way to spearhead its growth in Eastern Europe.
