S&N's quiet rise in the global brewing league

ONE could almost say that it was an excellent week in which to bury news, be it good or bad. Rod Eddington finally gave us an idea of how he would like British Airways to change. We discovered that Cable & Wireless's revenues were not quite as robust as we had previously been led to believe and the company's share price dipped to its lowest for a decade.

Body Shop declared that no, it didn't really need to be taken over by anyone else and could soldier on by itself. The Enron and Allied Irish Banks scandals continued to roll across the financial pages. The press dug over the implications of trying to provide us with proper pensions in our old age.

It gave us an an embarrassment of riches - and meant that several other significant reports failed to gain the coverage they would otherwise have merited.

One such was Scottish & Newcastle's £1.2bn takeover of Hartwall, Finland's largest drinks group. The deal gives the group a half share in BBH, Russia's largest brewer. This is a highly significant move in two respects. First, it makes S&N a genuinely major player in the global brewing industry: adding Hartwall's Baltika to its existing Kronenbourg and Foster's operations means the company will have two of the four best-selling beers in Europe and three of the top ten. As the brewing industry consolidates, S&N will fully merit a place at the negotiating table.

And second, the move surely buttresses the notion that S&N is now heading firmly down the road that will see it emerge eventually as a brewer interested in beer, lots of beer and nothing but beer.

The company still has nearly 1,500 pubs. Chairman Brian Stewart stoically defends S&N's retention of this end of the business. It shows good returns and, according to the company line, can increase its returns over coming years.

Well, maybe. But don't forget that in the near term, S&N is likely to be obliged to take full control of Kronenbourg - at the moment, the company has only a controlling stake - and that could make its debts look uncomfortably high.

S&N insists there is more than one way to skin this particular cat. Why not find someone simply to buy the pubs and then lease them back to S&N? Financing deals that take debt off a company's balance sheet may not be fashionable, but they are quite legal and would make S&N's gearing look less alarming.

But frankly, this is not the tidiest of solutions. Prices of pubs have remained remarkably resilient. S&N could take a hefty chunk out of its debts if were to sell the properties outright. And it would mark S&N's unambiguous conversion into a brewing group, pure and simple.

Look back little more than a decade: those who dominated brewing - Bass, Allied Lyons, Grand Metropolitan, Courage, Whitbread, S&N - owned most of Britain's pubs. And now? Only S&N remains.

The time is approaching when S&N will have to make the final leap and concentrate solely on brewing. A tentative prediction: its pubs will be gone within a year.

Royal flushed
THE saga of P&O Princess, Carnival Corporation and Royal Caribbean has become extraordinarily messy. And the trouble is, the saga isn't even over yet. This one may go quiet for a time, but it is far from finished.

A brief recap: Princess and Royal Caribbean wanted to merge. Carnival made an offer-with-strings for Princess. Shareholders in Princess decided to defer a vote on the Royal Caribbean merger.

Now we wait to see if Carnival was ever really serious or simply wanted to mess up a merger of its rivals; competition authorities are very likely to erect hurdles to a Carnival deal that will be hard to clear.

There are many strands to this affair. Concentrate on just one. It is remarkable - and rather disturbing, given the way that takeovers and mergers are usually conducted in the London market - that Royal Caribbean got away last week with changing its tune so drastically over a period of just 48 hours.

On Wednesday, the eve of the Princess shareholders' meeting, Royal Caribbean appeared clear: if the merger was not approved, then it would walk away. The company's chairman, Richard Fain, said: 'If there is no approval of the P&O Princess/Royal Caribbean Cruises combination tomorrow, there will be no deals - neither our combination nor the Carnival Corporation takeover.' It all seemed unambiguous.

But two days later? Shareholders had called Fain's bluff. 'Now we will need to consult with our advisers to determine the implication of the votes and their impact on the merger.' These weren't the words of a man storming out of the room and slamming the door never to return.

Fain is right to keep his options open. He was wrong and reckless to have implied earlier than he was about to do exactly the reverse.