Not three weeks after Britvic turned down a takeover approach from Carlsberg as “significantly” undervaluing it and its prospects, the storied British soft drinks maker has decided to sell itself to the Danish brewing giant after all.
A couple of things have happened to ensure the deal went through.
Firstly, Carlsberg raised its terms from 1250p per Britvic share to 1315p-a-share – comprising 1290p in cash and a 25p-a-share special dividend. The ‘bump’ appears to have convinced Britvic’s board – which will undoubtedly have taken soundings from shareholders on what might constitute an acceptable price.
The second development was that PepsiCo, with whom Britvic has an exclusive bottling arrangement, agreed to waive a clause in the pair’s agreement which entitled it to end the deal in the event of a takeover of Britvic.
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The change of control clause was widely regarded as a ‘poison pill’ that could have enabled PepsiCo to veto any takeover of Britvic – and so PepsiCo’s decision to waive it removed a significant obstacle to a takeover. It was significant that today’s stock exchange announcement, confirming the takeover, included a comment from Ian Durant, the Britvic chairman, which specifically referred to the uncertainty the clause generated.
The announcement also included a statement from Silviu Popovici, CEO of PepsiCo Europe, hailing the combination of Carlsberg and Britvic as having potential to “create even stronger sales and distribution capabilities for our winning brands in important markets”.
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It is worth noting that the price Carlsberg is paying is somewhat less than the market had expected.
Analysts at the investment bank Investec had argued, after Britvic had publicly rejected Carlsberg’s initial approaches, that an offer of 1350p “would be enough to get the deal done”.
In the event, Carlsberg has got away with paying less than that, with £3.3bn proving sufficient for it to get its hands on a drinks cabinet including Robinsons, J2O, Fruit Shoot, Tango, Aqua Libra, Ballygowan mineral water and the iconic R White’s lemonade.
What was not expected today was a second announcement from the world’s third biggest brewer after AB InBev and Heineken.
Carlsberg is also paying £206mn to take full control of the brewing joint venture it has with the pub operator Marston’s.
The joint venture, in which Marston’s previously had a 40% stake, was announced in May 2020 with a view to creating one of the UK’s biggest brewing, beverage and distribution businesses.
Today’s deal effectively makes Carlsberg the UK’s biggest player in cask ale – giving it full ownership of brands such as Marston’s Pedigree, Hobgoblin, Wainwright, Young’s, Courage, Banks’s, Jennings Cumberland Ale. and McEwan’s.
It is a portfolio of brands that has been painstakingly built up over many decades.
Marston’s was originally known as Wolverhampton & Dudley – one of the UK’s best-known regional pub and brewing companies and owner of brands such as Banks’s – before the latter bought Burton-based Marston’s in 1999. It changed its name to that of its better-known rival in 2007.
By then, the business had significantly bulked up its brewing business, acquiring Mansfield Brewery in 1999, Cockermouth-based Jennings in 2005 and Hampshire-based Ringwood Brewery in 2007. It completed the acquisition of Blackburn-based Thwaites – brewer of Lancaster Bomber and Wainwright – in 2015 and then, in 2017, it acquired Charles Wells’s Eagle Brewery in Bedford, giving it more ale brands including Bombardier, Courage and McEwan’s, as well as the global licence for Young’s beers – the brand remaining ultimately owned by the pub operator Young & Co.
The takeover will undoubtedly worry real ale afficionados who will question whether Carlsberg, best known for its eponymous lager, will have the same commitment to cask ale as Marston’s did.
The Campaign for Real Ale (CAMRA) succeeded in persuading the Competition and Markets Authority to investigate the original creation of the joint venture between Carlsberg and Marston’s and, although the deal was eventually waved through by the regulator, its point was made. It will be hoping that some of the smaller brands Carlsberg has now acquired can benefit from the supply and distribution agreements the company enjoys with pub companies and supermarkets.
The timing of this major consolidation in UK brewing is ironic in that it coincides with the election of a first Labour government in more than a decade.
There was once a time when UK brewing was dominated by the so-called ‘Big Six’ – Whitbread, Bass, Scottish & Newcastle, Courage, Allied Breweries and Grand Metropolitan (owner of Watney, Mann & Truman). Their power was broken by the 1989 ‘beer orders’, which ordered them to sell most of their pubs, with the aim of widening consumer choice by breaking the ‘tie’ between the big brewers and the pubs they owned.
The six then boiled down to a big four – with Grand Met having sold its brewing operations in 1991 to Courage, which was itself acquired by Scottish & Newcastle in 1996. Allied, meanwhile, pooled its brewing assets with those of Carlsberg to create Carlsberg-Tetley.
Enter the Labour government elected in May 1997. One of its first big decisions saw Margaret Beckett, the new Trade Secretary, block a planned takeover by Bass of Allied-Domecq’s 50% stake in Carlsberg-Tetley.
It led to a huge re-shaping of the UK brewing industry.
Carlsberg-Tetley promptly announced plans to close five breweries while Bass, concluding it would not be allowed to grow its brewing business further, sold its operations to Interbrew, the Belgian owners of Stella Artois and now part of AB InBev.
Whitbread, having reached a similar conclusion, subsequently sold its brewing arm to Interbrew which, on the orders of competition watchdogs, ended up selling most of Bass to the US giant Coors. That left Scottish & Newcastle as the UK’s only national British-owned brewer of scale. It was acquired by Carlsberg and Heineken in 2008. Bass became the hotel operator Intercontinental Hotels Group while Whitbread too is now focused on its Premier Inn hotel business.
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What has happened since is that a number of smaller pub operators have also sold their brewing arms, including Youngs and Fuller Smith & Turner. That left Marston’s and Greene King, now owned by Hong Kong billionaire Li Ka-shing as the only traditional indigenous pub operators and brewers of scale – although Heineken, which owns more than 2,400 UK pubs as a legacy of its takeover of Scottish & Newcastle, deserves an honourable mention here for its commitment to pubs. It recently announced a major investment programme to refurbish much of its estate and reopen 156 long-closed pubs.
But now Marston’s has quit brewing.
As a focused pub operator – running pubs and restaurants is a higher-margin activity than brewing – it has already seen its stock re-rated, with the shares rising 15% this morning.
Cask ale lovers, meanwhile, will now have to hope Carlsberg proves as good a custodian of these much-loved brands.
