S&N Says Carlsberg and Heineken Proposal Undervalues Them

14/01/08 Scottish & Newcastle plc has said that the 780 pence per share proposal from Carlsberg A/S and Heineken N.V. undervalues S&N. S&N said that the proposal of 780 pence from the Consortium fails to reflect a fair value for S&N.

The Board's expectations for S&N's full year results for 2007 remain as set out at the time of its Q3 Trading Update on 20 November, with all businesses making their expected contribution.

Despite the widely-reported difficult UK trading conditions in Q4 (particularly in the on-trade), total beer and cider volume was down by only 2% and sales were level year-on-year. The major brands' volume and sales were up 1% and 3% respectively. S&N said that its resilience in the UK is based on brand portfolio strength and market leadership as well as strong performances in the off-trade and with cider. In France Q4 is a relatively small part of the trading year, but encouragingly volume was slightly up. Full results for 2007 will be released on 19 February.

The Consortium's revised proposal of 780 pence implies a rating of 21.9x S&N's earnings for the twelve months ended 31 December 2006. This represents a negligible premium of only 0.1% to the average rating of the two bidders (Heineken is currently trading at 21.4x 2006 earnings and Carlsberg is currently trading at 22.4x 2006 earnings).
 
The premium fails to reflect the strategic importance of S&N's portfolio which enjoys leading positions in a consolidating global beer market with few remaining independent brewers.
 
The increase in the revised proposal represents even less of a movement by the Consortium to reflect the value of S&N than the headline number suggests. This is due to the depreciation of Sterling against the Euro, Rouble and Dollar since the Consortium's previous proposal to acquire S&N, submitted on 15 November 2007. During this period, Sterling has fallen 5.8%, 5.6% and 4.6% against those currencies. The Euro, Rouble and Dollar are the currencies of countries which accounted for approximately 70% of S&N's H1 2007 operating profit before central costs. As a result, the sterling value of S&N's foreign currency earnings has increased, improving the Consortium's ability to finance a bid for S&N and meaning that a significant part of the increase in their latest proposal is solely due to the currency effect.
 
S&N believes that synergies of 100 million per year are available from controlling BBH. As announced on 8 January 2008, this figure has been reported on by Ernst & Young and each of S&N's financial advisers (Deutsche Bank, Rothschild and UBS) in accordance with the Takeover Code. S&N believes that Carlsberg is not recognising full value for the synergies available from 100% ownership of BBH.
 
Given its strong positions in Western Europe and the US, Heineken would be able to realise significant synergies with S&N's Western European and US businesses. Moreover, S&N's position in India justifies a significant value given its market leading position and strong potential for growth. Analysts are projecting that Heineken can generate very attractive earnings accretion for its shareholders based on the businesses that they are proposing to acquire.
 
S&N has today sent Carlsberg a draft of an announcement setting out the information about BBH's prospects it wishes to publish and now awaits Carlsberg's agreement to immediate publication.
 
The Board of S&N has formed a view of the proper medium-term value of BBH based on the agreed business plan. Carlsberg will have formed its own view, and will be able to raise finance based on that view. S&N has consistently maintained that it is essential that its shareholders should also have sufficient information, so that they also can judge the value implications themselves.
 
S&N said that it is pleased that after more than two months of obstruction, Carlsberg has at last accepted that a summary of the BBH business plan should be released although its actual proposal in this regard made on 10 January was inadequate.

Formal profit forecasts for 2007 and 2008, or a current trading statement, as proposed by Carlsberg, will not demonstrate the growth for BBH extending to 2010 which the parties anticipate. S&N has requested publication of the following information for 2008, 2009 and 2010: beer market volume growth for Russia and total BBH average selling prices, sales, EBITDA, EBIT and capital expenditure.