S&N detail joint venture arbitration ambitions

By Neil Merrett

- Last updated on GMT

Related tags: Bbh, Carlsberg group, Carlsberg

As the deadline ticks down for brewer Carlsberg to acquire joint
venture partner Scottish & Newcastle, both companies are going
for the jugular in a battle that may significantly shake up the
status quo of European brewers.

S&N yesterday released a report claiming that acquiring Carlsberg's half of the Baltic Beverages Holding (BBH) joint venture would create £100m in cost benefits for its own operations. The claims come ahead of an arbitration case to be decided by 3 July that could force partner Carlsberg to sell its shares in BBH, which operates in Russia and a number of emerging Eastern European beer markets. The arbitration process, which is being conducted at the Arbitration Institute of the Stockholm Chamber Of Commerce, will rule on the case no later than 3 July and could end a long running battle between the companies. The conflict began in October, when Carlsberg announced that it had formed a consortium with rival Heineken to jointly purchase S&N and take BBH for itself. As a result, the brewer also alleged that Carlsberg has acted against the best interests of BBH by misusing confidential information, and was therefore in violation of their joint venture agreement. Should the arbitration court side with S&N, Carlsberg would be required to sell up its BBH assets under a "shotgun mechanism" agreement, which requires either company to offer their shares to their partner should they wish to quit the joint venture. Carlsberg has in turn moved to rubbish S&N's accusations, which it claims are based on "flawed legal assumptions". ​However, the group was last month set a deadline of 21 January by regulators to successfully acquire S&N and its stake in BBH, before having to wait until after the arbitration case to make another bid. This may favour S&N, which says that it is confident of success in the arbitration proceedings, a victory it claims that would grant it one of the most attractive profit margins in beverage manufacture. S&N chief executive John Dunsmore said the company was therefore determined to maintain value for its shareholders in order to prevent a sale of their operations to the consortium formed by Carlsberg and Heineken. "Carlsberg's desire to terminate the BBH joint venture by circumventing the BBH shareholders' agreement provides a huge opportunity for us to take control of BBH through a successful arbitration process,"he stated.​ In retaliation, Carlsberg welcomed S&N's arbitration claims, which it said were "frivolous"​ and had "absolutely no merit".​ The brewer also rejected S&N's claims that it had damaged BBH's prospects through its acquisition plans, claiming that the shotgun mechanism was only applicable should a partner wish to leave the joint venture, and should not therefore be considered in the arbitration case. "Carlsberg continues to be fully committed to the future of BBH and would suggest that S&N exercises the same high level of commitment pending the outcome of the arbitration proceedings,"​ the company stated.

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