Scottish & Newcastle buys Foster's brand in Europe

Scottish & Newcastle buys Foster's brand in Europe

	Published : Tue, 11 Apr 2006 12:25 By : Andrew Stead Print this Story

LONDON: The U.K.'s largest brewer Scottish & Newcastle Plc., is buying the Foster's lager brand in Europe, Russia and some of the former Soviet states from Australian beer maker Foster's Group Ltd for about 309 million pounds.

The Edinburgh-based company plans to finance two-thirds of the cost through a share sale and rest with borrowings. The company announced the share placements Tuesday. Chief executive Anthony Froggatt said the acquisition will have a "neutral effect" on the company's earnings per share.

Scottish & Newcastle has been brewing, packaging and marketing Foster's lager in Europe under a licence since 1995 and accounts for more than 80 per cent of the brand's 9 million hectolitres in sale. Under this arrangement, Foster's received royalties on sales of the branded beer and a guaranteed minimum marketing spend. The royalties had amounted to 15 million pounds in 2005.

The deal will give Scottish & Newcastle not only the brand ownership in the regions, but a wider geographical area as Turkey and countries in the CIS states will now be added to its domain.

The deal covers all Foster's brands, including Foster's Draught, Foster's Export and Foster's Ice. It is conditional on regulatory clearance and the company expects to complete it in about a month's time.

Froggatt says the acquisition will help the company in its sales. Foster's brands accounted for about 14 per cent of Scottish & Newcastle's total sales by volume in 2005.

Foster's now wants to concentrate more on the company's Australian brewing operations, which accounts for 62 per cent of the company's earnings, and its international wine unit, after it had acquired Southcorp Ltd. The company, with its brands like Penfolds, Wolf Blass and Rosemount, is the world's second-largest winemaker behind U.S. company Constellation Brands Inc.

The company said it plans to use the sale proceeds to pay debt.

Chief executive Trevor O'Hoy said the 1995 agreement was in perpetuity and the royalties stream was at about half the level that would be entered into today. The loss of revenue on that account would be largely offset by the company withdrawing from sponsorship of Formula One motor racing events and on other cost savings.