Stake sale: UB may let Carlsberg guzzle S&N

British beer giant Scottish & Newcastle (S&N)’s stake in United Breweries (UB) is back in the spotlight, with the Indian brewer confirming that the right of first refusal (RoFR) on the foreign partner’s shareholding will be pressed only to block the entry of certain competition, primarily SABMiller. S&N and Vijay Mallya equally own UB with 37.5% stake each.

UB’s move throws up opportunities for Copenhagen-based Carlsberg, which according to international media reports, is tipped to be the frontrunner to buy out S&N.

British media reports suggested that private equity Blackstone has been in discussions for placing a bid for S&N, which is seen hurtling towards an eventual sellout valued above $12 billion. It is believed that Blackstone has held talks with Carlsberg and S&N on the evolving situation.

“The RoFR that we have is limited to restricting certain business rivals,” UB sources said. "We do not have a problem with most of the global brewers, and we keep receiving interest from several of them though not linked to S&N developments," the sources added.

They declined to comment on whether UB’s right of first refusal was linked only to block SABMiller, which is the only serious rival in the Indian beer market now. UB, makers of Kingfisher beer, accounts for nearly 47% share of Indian consumption, while SABMiller follows with 36% share.

However, a source said UB, which had negotiated a failed joint venture with Carlsberg in the 90s, has nothing against the Danish brewer. “It is all long buried in the past,” the source quipped.

Investment bank Dresdner Kleinwort stated the possibility of acquisition of S&N by Carlsberg was high at 70%, while Merrill Lynch said a deal with Carlsberg looks “inevitable”. Both Carlsberg and S&N have declined to comment on media speculation with a business-as-usual approach.

It is believed that UB could attract a standalone valuation of $2-2.5 billion, which pegs the S&N stake at around $900 million. S&N bought into UB at Rs 575 per share. The stock, which underwent a 1:10 split subsequently, was quoting at Rs 310 (Rs 3,100 on Rs 10 share) on BSE on Tuesday.

The robust rally in market capitalisation and the strategic significance of the Indian market, touted as the last potentially big beer market globally, could place UB along with its Russian JV Baltic Beverages Holdings (BBH) as jewels in the S&N crown.

Industry observers said any opportunity to break into UB will excite a larger interest among leading global brewers. “This is a chance to gain a major entry into in the biggest brewer in India, which is arguably the fastest-growing beer market globally,” said an industry expert who did not wish to be quoted.

Even though most of the global brewers have charted an independent foray into India, it is believed that players like InBev, the world’s biggest brewer by volume, have continued to look at UB.