Carlsberg and Heineken on Friday finally agreed a cash bid of 7.8 billion pounds ($15.3 billion) to buy and break up Scottish and Newcastle (S&N) to boost the Danish brewer's position in Russia and the Dutch group's presence in western Europe.
Carlsberg and Heineken said they had agreed a deal at 800 pence a S&N share which was recommended by the board of Britain's biggest brewer and the world's sixth-largest beermaker after a three-month takeover saga.
Analysts said the long-awaited deal would be positive for both the bidders as they moved to split up the brewer of Foster's, Kronenbourg and Newcastle Brown Ale. Carlsberg and Heineken are splitting the costs of the deal 54-46 percent.
The deal comes as brewers look to cut costs as input prices for malting barley and aluminum cans have risen and to create a bigger platform for their top brands. It also puts pressure on other brewers such as Molson Coors and Foster's to perform better or look for similar deals, analysts said.
S&N shares rose 2.2 percent to 783p by 1050 GMT while Carlsberg dipped 4.8 percent to 531 crowns and Heineken was 0.5 percent ahead at 40.58 euros.
Given the compelling strategic rationale, we see the deal as a good one for Carlsberg, said Cazenove analyst Matthew Webb, who added that the deal would also enhance Heineken's earnings in the medium term.
S&N and Carlsberg have agreed to release projected information for their 50-50 Russia-based joint venture Baltic Beverages Holding (BBH) for 2008 to 2010, which had been a sticking point in the takeover fight.
The deal appears to be a good one for (S&N) shareholders, and we expect it to proceed, with completion during Q2 2008, said Charles Stanley analyst Sam Hart.
In a single step we have created the world's fastest-growing global brewer. We now have full control of our destiny in Russia and other BBH territories, Carlsberg Chief Executive Jorgen Buhl Rasmussen said in a statement.
The bidders announced bigger projected cost savings than expected, with Heineken targeting annual synergy benefits of 120 million pounds by the fourth full year after the deal closes while Carlsberg looks for annual savings of 126 million pounds by year three.
Under the break-up plan, Carlsberg will acquire S&N's 50 percent stake in BBH to get full control of the brewer of Baltika in the former Soviet Union, and also S&N's interests in France, Greece, China and Vietnam.
Heineken will take over S&N's British business, which includes Strongbow cider and John Smith's beer, along with its operations in other European markets such as Belgium, Portugal and Ireland, plus its United States and India businesses.
The bidders say the approval of the European Commission and other competition authorities will be required and it is expected the deal will be completed in the second quarter.
No final S&N dividend for 2007 will be paid.
Carlsberg is planning to fund around 55 percent of its deal by a 31 billion crown equity bridge loan to be repaid with a rights issue and the rest by debt. Heineken will fund its deal by debt so as not to dilute the controlling Heineken family.
The deal values S&N at 14.3 times 2006 EBITDA for its mix of mature and fast-growing markets, well ahead of the last big deal in 2005 when SABMiller paid 10.6 times for Latin America's Bavaria, but below the 14.7 times SABMiller agreed to pay for Dutch brewer Grolsch.
S&N was advised by UBS, Deutsche Bank and Rothschild, Carlsberg by Lehman Brothers and Heineken by Credit Suisse.
(Additional reporting by Mette Kronholm Fraende in London and Niclas Mika in Amsterdam; Editing by Quentin Bryar, Paul Bolding)