I have always claimed that Russian beer is superior to German (although Russian breweries use German equipment anyway). We have our mini-arguments about it at home, especially when I get the treat from a local Russian supermarket.
This week however I was pleased to learn that the battle around the Russian Baltic Beverages Holding is heating up. Carlsberg and Heineken are fighting with Scottish & Newcastle as to who will end up owning it. Blackstone and TPG have both stepped in to finance this joint venture buy-out on S&N side.
In my work I see many PE firms forming Eastern Europe-focused strategy out of the local offices: Poland (3TS), Ukraine (Advent), Russia (TPG). Other firms, such as Blackstone however build their East European teams within their existing teams in the West.
There are arguments for both approaches. Local presence offers a better chance to find a good deal while minimising the likelihood of a competitive bidding which occurs when deals are advertised by investment banks. It offers an ease of networking, a better chances of doing due diligence, an access to the local advisors and a much better availability of the executives at a short notice. But it comes at a price, especially when the dealflow is scarce and really good deals are are hard to come by.
Russia is perhaps still such a country where despite the economic growth risks are perceived high, preventing many investors from playing an active role there (few will remember a murder of Baltic Beverages’s CFO in 2000). Both Blackstone and TPG name Russia amongst their regions of interest. Blackstone, which started actively looking at Russia only a few months ago, does it out of its London office. Texas Pacific however went all the way to establish local Russian presence with the former British Olympic athlete Stephen Peel running it.
Should S&N win the bid for Baltic Beverages Holding, Blackstone would justify its strategy based on a pan-European team structure. but Mr. Peel would question whether moving to Russia was necessary.
Scottish & Newcastle’s Russian buyout
January 13, 2008 Sunday Times
TWO private-equity groups, Blackstone and Texas Pacific, have held detailed talks with Scottish & Newcastle, the brewer, to help buy out Carlsberg’s £4 billion share of the Russian joint venture Baltic Beverages Holding.
Blackstone and Texas have made separate approaches to S&N’s chief executive, John Dunsmore. Both groups have said they are prepared to invest as much as £2 billion. The approaches form one of the key reasons why the S&N board last week rejected a revised offer of 780p per share from a European brewing consortium comprising Carlsberg and Heineken, valuing the company at £7.6 billion.
Dunsmore is confident he can generate significantly higher value for his investors by buying out Carlsberg’s interests in BBH, rather than selling out. However, some big investors are concerned that his determination to see off the bidders will result in a big share-price fall if he is successful.
A top five shareholder said: “There will be a severe backlash against the board if they let this deal fall through.”
Another said: “There is real commercial sense behind this deal. The board might say it can go it alone, but so far it has failed to do so.”
