Will S&N deal trigger open offer for UBL?

Will S&N deal trigger open offer for UBL?
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First Published: Sat, Jan 26 2008. 12 19 AM IST
Updated: Sat, Jan 26 2008. 12 19 AM IST
Mumbai: Executives at the UB Group were evaluating options on Friday evening after the board of Scottish and Newscastle Plc. (S&N), which holds a 37.5% stake in India’s United Breweries Ltd (UBL)—the same quantum as that held by UB Group—accepted a takeover bid by Carlsberg A/S and Heineken NV, a move that could trigger a takeover bid for the Indian brewing company.
“We are in a wait-and-watch mode,” said Ravi Nedungadi, chief financial officer, UB Group.
Under the break-up plan of S&N, Heineken will get the company’s stake in United Breweries. Indian laws mandate that any transaction involving more than 15% of a company’s equity be followed by an open offer to shareholders to acquire a further 20% in the firm. This means Heineken may have to make an open offer to shareholders of United Breweries. That won’t suit UB Group, which is unlikely to want someone to have a larger stake in its brewing firm.
Heineken has been present in India since 2006 through Asia Pacific Breweries Ltd (APB), a company in which it holds a 42% stake. Executives at the company could not be reached for comment. However, CNBC-TV18 reported that Heineken had told it that the company was not looking to increase its stake in United Breweries now. It wasn’t immediately clear whether India’s stock market regulator Sebi would allow this.
Officials at Sebi could not be reached for comment.
At least two M&A experts said the rules were not clear in such situations. One of them, Darshan P. Upadhyay, a senior associate with ARA Law, said: “When it is such a large quantum of stake in question, it should definitely trigger an open offer. However, Sebi has discretionary powers to waive such an offer.” In 2006, when Procter and Gamble India Holdings acquired a 41.02% stake held by US’ Gillette Co. in Gillette India Ltd, following a $57 billion (Rs 2.25 trillion today) global deal a year earlier, it did not make an open offer for publicly listed shares of the Gillette unit, which was 12% owned by public shareholders and 20% by Indian partner Saroj Kumar Poddar, a Kolkata businessman.
Nedungadi, too, said the acquisition “may not essentially trigger an open offer”. He also said that under the terms of UB Group’s agreement with S&N, the former could, under certain conditions, buy back S&N’s stake at a “fair price”. He did not elaborate further on this, but said UB Group had engaged Citigroup Global Markets India Pvt. Ltd to advise it.
One analyst said UB Group, headed by flamboyant billionaire Vijay Mallya, would likely buy back the stake held by S&N. “But there is the question of money,” said the analyst with a foreign brokerage, who asked not to be named.
UB Group has made a string of acquisitions recently, including Scottish liquor firm Whyte and Mackay and French wine maker Bouvet Ladubay. It also acquired a controlling stake in Deccan Aviation to merge with its own Kingfisher Airlines. The total bill on these acquisitions: $1.35 billion.
United Breweries, itself, is spending $290 million over three years to nearly double capacity. It has said it will raise Rs425 crore from a rights issue. UB Group has said it could possibly sell shares in Kingfisher Airlines to raise up to $250 million. But a volatile stock market and a tight credit situation could hobble these plans, the analyst said.
United Breweries had around Rs476 crore of debt as on 31 March 2007. It ended 2006-07 with revenues of Rs1,046 crore and a net profit of Rs65 crore.
Per capita consumption of beer in India is less than 1 litre, according to estimates by research firm Euromonitor, offering potential to brewers such as SABMiller, Anheuser-Busch, Carlsberg and Heineken, who are looking to offset flat growth in Western markets. Nedungadi said Heineken would try and leverage UB Group’s marketing strength and distribution network to be successful in the local market. So, “they would require us rather than us requiring them. And we would probably sit and discuss the details of how the business would remain successful here”, he added.
“Having a big international brand doesn’t mean success is guaranteed,” said Asif Adil, managing director of Diageo India which has a venture with India’s Radico Khaitan.
Earlier on Friday, Carlsberg and Heineken announced a $15.3 billion bid to take over S&N, Britain’s largest brewer.
Rina Chandran is with Reuters.
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First Published: Sat, Jan 26 2008. 12 19 AM IST