Scottish & Newcastle looks east

Hartwall has a strong presence in eastern Europe

British pub owner and brewer Scottish & Newcastle is to buy Finland's biggest drinks firm Hartwall, gaining a foothold in the fast-growing eastern European beer market.

S&N on Thursday said it had agreed an all-share offer worth 2bn euros ($1.8bn; £1.2bn) with Hartwall, a move which looks set to create a European brewing giant with annual sales of 7.4bn euros.

Hartwall at a glance

Finland's biggest drinks company (45% market share)

2001 sales 807m euros

2001 profits 162.5m euros

10,000 employees

"We are creating a leading force across the whole of Europe from Siberia to the Atlantic," said S&N chairman Brian Stewart.

Hartwall's shares soared 16% to 29.5 euros on the news, while S&N slipped about 3% lower to 576p.

Eastern expansion

Should it come off, the deal would gift S&N with Hartwall's 50% stake in Baltic Beverages Holding (BBH), a Stockholm-based brewer with a 30% share of the fast-growing Russian beer market.

BBH also produces the top-selling brands in the Baltic states, Lithuania, Estonia and Latvia.

The other half of BBH is owned by Danish brewing giant Carlsberg, one of S&N's main competitors.

S&N downplayed speculation that the new joint ownership arrangement with its Danish rival might not run smoothly.

Harwall's Lapin Kulta: Finland's leading beer

"We have a longtime relationship with Carlsberg already in England," said S&N managing director Guy Dickinson.

The deal would also hand Hartwall's 45% share of the Finnish beer and soft drinks market to the British brewer.

Hartwall's brands include Finland's most popular beer Lapin Kulta.

Pub sell-off pressure?

The Hartwall acquisition, which will be funded by additional borrowing as well as a new share issue, is expected to push S&N's total debt up to about £3.3bn.

This has fuelled speculation that the deal may put the British brewer under pressure to sell off its 1,500 UK pubs, thought to be worth up to £2bn.

S&N is still paying for its acquisition of France's leading brewer Brasseries Kronenbourg in July 2000.

Chasing sales

International brewers are currently eager to establish a presence in eastern Europe and other emerging markets in order to offset stagnant sales growth in western countries.

On Thursday, Carlsberg blamed slow sales and stiff competition in its key western European markets for lower than expected profits growth.

The company said profits for 2001 climbed to $399m, 63% up on the year, but short of analysts' forecasts of about $410m.

In a further sign of S&N's drive towards high-growth markets, the company's part-owned Indian subsidiary United Breweries on Thursday became the biggest beermaker in the southern state of Andhra Pradesh by acquiring a local brewer for $11.7m.