Britain's biggest brewer Scottish & Newcastle this week reported strong full year results for fiscal 2003, despite reorganisation costs in the UK market and the upheaval of various acquisitions.
The good performance is a testament to S&N's strategy of expanding its European business through acquisitions at the same time as withdrawing from the UK pub sector.
But, according to market analysts Euromonitor, S&N's decision to sell its £2 million pub business could lay it open for takeover by one of the world's major brewing groups.
"With the costly acquisitions of Portugal's Central Cervejas and UK cider maker Bulmer weighing on the shares, the UK's number one brewer, which is transforming itself into a nice, clean brewing business with a stable of strong brands, makes an attractive stock," said Euromonitor drinks analyst Natasha Berg.
US giant Anheuser-Busch, owner of the world's leading beer brand Budweiser, is among the potential acquisition candidates. Taking on Scottish & Newcastle would offer it some interesting synergies, not to mention the competitive benefits of consolidation in Europe.
Anheuser-Busch is currently ranked 20th in the western European beer market, accounting for just over 1 per cent of total volume sales in 2001. An acquisition of Scottish & Newcastle would increase the company's share in Europe by 7 percentage points, pushing the company to third place in the region, behind the two leading European brewers, Heineken and Interbrew.
But the potential acquisition is of interest not just for the clear benefits that it would bring the company in Europe. Scottish & Newcastle's share of 0.1 per cent of the North America market is also significant to Anheuser-Busch in terms of the new products it has to offer. Scottish & Newcastle's presence in North America is chiefly through exports to the US of dark beer Newcastle Brown Ale and Beamish Stout, according to Berg.
Although small categories in a US market dominated by lager, both stout and dark beer are also the fastest growing compared to lager which actually experienced a marginal volume decline in 2002. The distribution network and marketing clout of Anheuser-Busch will enable it to grow brand sales much faster than Scottish & Newcastle has been able to thus far. Such a venture would reinforce the global giant's position as the leading brewer in the US, with estimated combined sales of 12.1 billion litres.
But A-B is unlikely to be alone in coveting Scottish & Newcastle. The British brewer is also thought to be on the radar of Belgian brewer Interbrew, which would double its share of the western European market if it acquired S&N, taking it to the number one spot in the western European rankings, ahead of Heineken and SABMiller. The UK is easily Scottish & Newcastle's most important market, accounting for around 75 per cent of sales and over 82 per cent of operating profit in 2002.
A deal would also bring a balance to Interbrew's operations in France, by propelling it above Heineken to rank number one in the country. Furthermore, with only a minimal presence in Portugal currently, the company would be able to take advantage of Scottish & Newcastle's well-established ties with Central de Cervejas, where it currently ranks second with volume sales of 213 million litres.
Other potential acquirers include SABMiller, the world's second largest brewer, formed in a merger between South African Breweries and Miller Brewing last year. SAB Miller already ranks second in western Europe, accounting for over 10 per cent. An acquisition of Scottish & Newcastle would take the company's share in the region to a full 17 per cent, leap-frogging Heineken to lead the region.
Any deal with Scottish & Newcastle would include Europe's ninth largest-selling lager Kronenbourg, which remains the prized asset for any prospective buyer. Scottish & Newcastle's 50 per cent joint venture in Baltic Beverages Holding is also a strategic asset worth holding, not to mention its John Smiths brand, which holds a 4.6 per cent share of the UK market.
"With the European market, as in North America, now all but consolidated, it looks like a sale of Scottish & Newcastle could be the last call for large beer acquisitions in Europe. Its takeover by one of either Anheuser-Busch, Interbrew or SABMiller would certainly prove a valuable strategic asset in what has become an exceptionally competitive market place," Berg concluded.
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