S&N threatened with lawsuit after arbitration move
Relations between Carlsberg and Scottish & Newcastle reached a new low yesterday after the Danish group threatened to sue the brewer of John Smith's and Kronenbourg.
The extraordinary threat came in response to S&N's announcement that it had begun arbitration proceedings in Sweden as it pushes ahead with its effort to force Carlsberg to sell out of the Russian joint venture that is at the centre of the growing takeover row. An adviser to Carlsberg said: "Arbitration proceedings could take over a year and could result in Carlsberg taking legal action against S&N for material damages."
The arbitration "taints the business" and has "little or no prospect of success," he added. Carlsberg has hired Norton Rose in London and Vinge in Sweden for legal advice.
Hostilities broke out between the two companies after Carlsberg teamed up with Heineken to launch a surprise break-up offer for S&N last month. The brewer reacted hostilely to the advance, dismissing outright a formal 720p-per-share offer that was tabled by the bidders last week. S&N has since mounted a counter-offensive, alleging that Carlsberg, by making a bid for S&N, breached the agreement that governs their joint ownership of Baltic Beverages (BBH), the Russian brewer. Analysts estimate the unit is worth up to £4bn and is the primary target for Carlsberg.
Under the so-called "shotgun contract" that governs BBH, either partner can offer to buy the other out. If the latter responds by coming back with a higher offer, however, the first bidder must accept. S&N claims that the shotgun has been triggered and that Carlsberg must now sell.
The claim is "spurious and without merit or foundation", said the Carlsberg adviser. "Scottish & Newcastle should engage with the consortium, not its lawyers. We have been taking counsel from leading law firms, and they have concluded that S&N has no case whatsoever and that it is wholly implausible that arbitration will result in S&N being able to acquire BBH.
Analysts believe the arbitration proceedings are simply a negotiating tactic to get Carlsberg and Hein-eken to increase their offer price. Under the Swedish procedure, each company must appoint an independent arbiter to represent their interest and submit written evidence. A chairman would then make a ruling, which is binding.
S&N said yesterday that it "continues to believe that this course of action will enhance its options to maximise value for S&N shareholders". S&N has also been sounding out other brewers to make a joint bid for Carlsberg's BBH stake. Another option for S&N would be to sell its stake to a larger brewer such as SABMiller which could afford to pay more for it than Carlsberg.