No Pain, No Gain: Bid action is brewing round Scottish & Newcastle

Although Scottish is the nation's biggest brewer and has interests in Europe and elsewhere, it is not one of the world's top players. So it has to grow - or it will become fodder for a more determined rival.

Scottish, like Allied, is a longstanding member of the No Pain, No Gain portfolio. Indeed, the two were recruited within a few weeks of each other. Although I was attracted by their respective trading prospects, the possibility of corporate activity was an important influence. With the drinks industry seemingly set on relentless consolidation it was possible to question the continuing independence of both companies.

Well, Allied has capitulated, admittedly some six years after I descended on the shares. I doubt whether a Scottish solution will stretch my patience a further six years.

Before Pernod Ricard of France alighted on Allied, the British wine and spirit group had often been the subject of intense takeover gossip. Pernod, of course, was one of the rumoured strikers. So was Bacardi, the unquoted rum group. And suggestions of consortium bids were often heard.

I first encountered Allied when it was a regional brewer called Ind Coope & Allsopp. It reigned as the biggest pub-owning brewer in the land after getting together with two others to counter the advance of a Canadian brewer called Edward Taylor who, with a series of audacious bids, seemed intent on capturing the entire British beerage.

Later, it became Allied Breweries, and then, when it acquired the old Joe Lyons food group, Allied-Lyons. The Allied Domecq title was assumed following the takeover of Pedro Domecq, the Spanish brandy and sherry maker.

Although Allied and Scottish trod different drinks paths - with Allied abandoning brewing to concentrate on wines and spirits - their histories are remarkably similar. The basic difference is that Scottish remained in brewing. It did try its hand at diversification, reaping rich rewards from hotels but scoring less impressively with holiday centres (what is now Center Parcs).

In the end Scottish, as Allied had earlier, sold its pubs to focus on its brands. Continuing takeover speculation has also plagued Scottish; indeed, one knee-jerk reaction to the Pernod interest in Allied was a ferment in Scottish shares as rumours of an offer swirled around.

Whether the John Smith's brewer has held talks with any of the suggested bid candidates is unclear. There is a strong belief that it has acknowledged the existence of SABMiller, which through spectacular deals has advanced relentlessly to become one of the world's top brewers. It has just acquired South America's second-largest group.

Heineken of Holland (outbid for the South American prize), Carlsberg of Denmark and the mighty Anheuser-Busch of the United States are other contenders for the tartan hand.

Since joining the portfolio, Scottish has had an eventful time. Trading results were at times far from impressive. A new distribution set-up was initially a disaster. The stock market was so disgusted that the shares became the highest yielders in the Footsie index. They crashed from nearly 700p to just below 300p. At about 475p now, the yield, following a dividend cut, is still an attractive 4.3 per cent.

It has overcome its difficulties. Profits are moving ahead. There are hopes it will roll out earnings per share of 31.9p this year, against 30.2p last time. The man who can claim much of the credit for the revival is Tony Froggatt who, like Philip Bowman (the force behind Allied), is Australian. He has smartened up the brewer's trading performance and was brave enough to take some unpalatable decisions, even closing two historic breweries, including the home of the famous Newcastle Brown Ale.

The jewel in the Scottish crown is its half-share of Baltic Beverage Holdings, which operates mainly in Russia and Ukraine. In this country and in many parts of the world, beer consumption is pretty flat. But in the former Soviet Union - as drinkers switch from vodka to beer - it is growing at a heady rate. And BBH, which Scottish owns along with Carlsberg, is probably the happiest brewer in the world.

Still, it is the takeover possibilities that fascinate me. I am prepared to bet a pint pot to an old penny that it will not be too long before I'm toasting another takeover success. And should a bid fail to appear, then those Russian drinkers should help to keep Britain's last major brewer rolling along in some style.

cash@independent.co.uk