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The City

Published:  18 January, 2007

When it floated on the stock market in 1996, Belhaven, the Dunbar-based brewer, was valued at just 40 million.

So the company's shareholders will not be too dismayed that it is being taken over by Greene King for 254 million and at a 16% premium to its closing price before the bid was unveiled.

For Greene King's shareholders, the deal is the latest in a well-established pattern of expansion through acquisition to provide a much bigger estate and economies of scale in production. The company's shares have more than doubled in value over the past decade as the Suffolk-based group has spent almost 1.6 billion on 1,900 pubs in a string of transactions. Included in its empire are former independents such as Magic Pub Co, Beards (of Sussex), Marston's (of Burton), Morland (of Abingdon), Old English Inns, Morrells of Oxford, Laurel, Ridley's and now Belhaven.

But the Belhaven deal breaks new ground in that it takes Greene King out of its southern heartland and into Scotland for the first time. Furthermore, the new owner has pledged to retain the Dunbar brewery indefinitely, which makes commercial sense in terms of volumes, as well as being good for public relations. So, apart from creating annual cost savings and synergies of about 5 million, putting the two groups together is rational. Some 75% of Belhaven's beers are sold via the free trade, despite its having 101 managed pubs

and 169 tenancies throughout Scotland, and its beers will enjoy greater volumes by being made available through Greene King's southern estate. Greene King's own ales will gain extra sales through Belhaven outlets.

So, given Greene King's enviable record of making acquisitions work for its shareholders, you might think everyone in the City approves of the deal. In the main, they do, but some are fretting that Greene King might be paying top dollar at a time when others are thought to have crunched the Belhaven numbers and said No thanks'. The spectre causing the anxiety is the smoking ban that will take effect in Scotland's pubs and bars next April. Analysts calculate (on the back of a cigarette packet) that it could hit annual profits by between 7% and 10% as smokers take to drinking at home, but nobody is certain.

Greene King says it factored a slightly more bearish view' into its calculations about Belhaven, which was always going to be an industry benchmark on the forthcoming smoking ban. The focus will turn on Greene King's first results once it is in place. But even a 20% slump in Belhaven's profits will be more than made up for by the cost savings that will be achieved and the extra sales in England. It may take a little longer this time, but Greene King's shareholders should still enjoy the fruits of the takeover.