BBH In Talks to Acquire Sarmat

According to local newspaper Delo, Baltic Beverages Holding is in acquisition talks with Rinat Akhmetov-owned Sarmat brewery. Neither side has confirmed negotiations are taking place, but Sarmat’s CEO said that they signed a beer bottling contract with BBH, which currently lacks its own capacities. Baltic Beverages Holding is a major shareholder of Slavutych Brewery (SLAV: BUY). Olha Pankiv: If confirmed, BBH’s acquisition of Sarmat would result in a 27% market share for the entire group, up from 19% in 2007. As we believe that in the mid-term, BBH would consolidate its assets under one roof, similar to what Baltika did in Russia, shareholders of Slavutych (SLAV: BUY) would gain exposure to a significantly stronger beer group. While previously BBH downplayed any interest in Sarmat, saying it did not want to pay for duplicate distribution channels, the turnabout could be related to the change in BBH’s ownership. Heineken (who was reportedly interested in Sarmat) and Carlsberg bought out S&N (50% owner of BBH) in January 2008. We reiterate our BUY recommendation.