Bloomberg News

Baltika Shareholders Approve Russian Breweries Merger

March 09, 2006

Baltika Breweries said minority shareholders approved a merger with three other brewers to build its market leading position in Russia and expand internationally.

The combination with Pikra, Vena and Yarpivo was supported by a ``very substantial majority'' of shareholders at a March 7 meeting, according to an e-mailed statement today from Baltika, which is controlled by Scottish & Newcastle Plc and Carlsberg A/S. (CARLB) The merger will double the number of Baltika's breweries to 10 from five.

``This merger enables us to strengthen our position as the leader in the highly competitive domestic market and gives us an extended platform for international expansion,'' Baltika President Anton Artemiev said in the statement.

The merger will bolster Baltika's position in its home market, where beer sales are forecast by UBS AG to increase by a third by 2010 after doubling since 1999. Anheuser-Busch Cos., the world's biggest brewer, announced a venture with Heineken NV this week to brew and distribute the Bud brand in Russia, where Heineken sells more beer than anywhere else in the world.

Only non-affiliated minority shareholders of Baltika were eligible to vote on the merger, according to Russian legislation. The resolutions were supported by the holders of more than 8.41 million shares, or 98 percent of shares voted and 88 percent of all shares eligible to vote, the company said.

Credit Line

Shareholders in Pikra, Vena and Yarpivo will now be offered the option to exchange their stock into Baltika ordinary shares or sell them to the brewer. Baltika shareholders may sell their shares back to the company or retain stock in the enlarged company.

Baltika's owner, Baltic Beverage Holdings AB, will provide a $600 million five-year credit line to Baltika at 1.2 percentage points over the London interbank offered rate to finance the buyout, Artemiev said today on a conference call.

Baltic Beverage Holdings, or BBH, is the largest brewer in Russia, with a market share of about 36 percent. BBH and its controlling shareholders Scottish & Newcastle and Carlsberg owned 91 percent of Baltika at the end of 2005.

The merger is still conditional on the approval of shareholders in Pikra, Vena and Yarpivo and Russian regulatory consent. It is due to be completed by late 2006, the company said.

Scottish & Newcastle

The enlarged business would have had net income of $207 million and sales of $1.51 billion in 2004. The merger would create annual cost savings of as much as $80 million in the first full year after completion, BBH has said.

``We are delighted with the overwhelming support of the minorities, which allows us to release between $60 million and $80 million in synergies to grow Baltika as Russia's leading consumer goods brand,'' said Scottish & Newcastle Director John Nicolson in a separate statement today. He's also BBH's chairman.

A previous attempt to merge the breweries failed in July, after Baltika shareholders rejected the purchase of BBH's Pikra stake.

Scottish & Newcastle shares rose 9 pence, or 1.7 percent, to 531 pence in London, the highest closing price since October 2002. Carlsberg shares fell 4 kronor, or 1 percent, to 389.5 kroner in Copenhagen. Baltika shares didn't trade on the Russian Trading System Index.

To contact the reporters on this story: Michael Teagarden in Moscow at mteagarden@bloomberg.net; Meera Bhatia in London at mbhatia2@bloomberg.net.

To contact the editors responsible for this story: Tim Coulter at tcoulter@bloomberg.net; Kimberly Kirner at kkirner@bloomberg.net.


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