Carlsberg to avoid monopoly laws by selling brewery

VILNIUS – Following the ruling by the Lithuanian State Competition Authority, Dannish brewing giant Carlsberg decided last week to sell one of its three local breweries, in order to secure its merger with Norway's Orkla in Lithuania.

On Nov. 3, the two companies announced that they would be forming a jointly owned beverage company called Carlsberg Breweries that will be 60 percent owned by Carlsberg and 40 percent owned by Orkla.

The deal will see Orkla's beverage holdings transferred to the new company.

In Lithuania, Carlsberg owns 58 percent of the largest brewery, Klaipeda-based Svyturys, while Orkla owns 50 percent of the second and third leading breweries, Utenos and Kalnapilis, through its Baltic Beverage Holdings (BBH) subsidiary. The three companies account for almost 70 percent of Lithuania's beer production. Lithuanians drink 54 liters of beer per person per year with imports accounting for only a tiny fraction of the market.

Lithuania's state competition authority approved the merger on Nov. 9 on condition that the new company divest itself of one the three breweries.

"We want one (of the three) to be sold as quickly as possible so that the market does not suffer any major shocks," the agency's head Rimas Stanikunas told reporters.

By Nov. 16, Carlsberg had decided that one of the breweries would be sold by early next year. It is widely speculated that third-place Kalnapilis will be the one to go.

There had initially been some opposition from Carlsberg about the ruling, but Stanikunas said that the competition authority could impose fines as heavy as 10 percent of annual turnover as well as force the company to comply through the courts.

The head of Lithuania's Association of Brewers, Audrius Vizys, told the business daily Verslo Zinios that it would be best for the consumer if Kalnapilis were sold to a smaller company to create a new second player in the market. Kalnapilis shares rose by 20 percent over the next two days following the Nov. 8 announcement, based on speculation regarding its fate as part of the Carlsberg group.

Lithuania's smaller brewers greeted the news warmly. "I welcome the decision," said Regimantas Dima, commercial director of Vilniaus Tauras. Our company occupies a niche in the market by producing strong, dark ale that tends to be favored by male consumers and is controlled by Brewery Group Denmark. "We have upwards of 400 workers here whose jobs were threatened," said Tauras.

The decision also benefits the consumer who will continue to have more choice and it will prevent a leveling of tastes and flavors in the market," he told The Baltic Times.

Eugenija Sevelinskiene of Kaunas' independent Zalsvytis Brewery said if the merger of all three breweries had been allowed to take place, all independent brewers would have gone bankrupt. "This would have meant a loss of 1,200 to 2,000 jobs in this industry. We cannot allow this to happen," she said.

Orkla's BBH subsidiary also owns the Saku brewery in Estonia and Aldaris in Latvia. On Oct. 20, BBH signed a preliminary agreement with Pepsi Co. to manufacture and sell soft drinks in the three Baltic States. It is expected that the agreement will run for 20 years. Soft drink consumption in the Baltics is quite low, 24 liters per person, compared to over 70 liters in Scandinavian countries.