24th Oct 2014 09:17
LONDON (Alliance News) - C&C Group PLC on Friday confirmed it is looking to gatecrash the acquisition of Spirit Pub Company PLC by Greene King PLC and outlined the drivers for the deal, but shares in the company fell on the back of Spirit's rejection of the approach on Thursday and a warning from analysts about the apparent strategic shift by C&C that the bid indicates.
The Irish drinks company, which makes Magners cider and Tennents lager, confirmed it has made a preliminary approach to the board of Spirit and said its management team "strongly believe that a combination of C&C?s brands with Spirit?s high quality, well-located pub estate is the most effective way to optimise shareholder returns in a competitive UK market".
Spirit shares were up 1.4% to 107.75 pence on Friday. Greene King shares were down 1.1% to 788.5 pence and C&C shares were down 7.3% to 3.635 pence.
Spirit had said on Thursday that it had received an approach from C&C but that it had rejected the offer. It did not define the value of the offer made by C&C. The Irish company has until November 20 to make a firm offer for Spirit or walk away.
The rival offer comes after Spirit on Monday said it was open to recommending an increased takeover offer from FTSE 250-listed rival Greene King. The new deal values Spirit at around GBP723 million, above the GBP661 million approach Greene King had made a month earlier, which Spirit said undervalued the business and its prospects. Greene King has until October 30 to make its own firm offer.
Under the terms of the current offer from Greene King, Spirit shareholders would receive 0.1322 Greene King shares per Spirit share they own and a cash payment of 8 pence, including any 2014 final dividend, representing an indicative value of about 109.5 pence per share, based on the closing price of Greene King shares on October 17, the last trading day before the offer was made.
Shore Capital says that while press reports indicate the C&C bid is slightly higher, at around 115 pence per share and with a higher cash element, it argues the synergy savings in a link-up of C&C and Spirit would be limited.
The broker said it estimates around GBP20 million to GBP40 million in savings from the combination of Greene King and Spirit, through overheads, purchasing and cross-selling of Greene King products in Spirit pubs.
Shore also said it has put its Buy recommendation on C&C under review given that the bid to buy Spirit, a pub company, indicates a strategic shift away from being a drinks manufacturer which could "fundamentally change" its business model.
Shore said that while an argument exists in favour of a vertical integration model akin to the likes of Greene King, Fuller, Smith & Turner PLC or Marston's PLC, an acquisition of a pub company "vastly changes the investment proposition".
"The move for a pub business in the UK with a mixed estate of managed and tenanted pubs, some food led and some wet led, and some with hotel rooms creates a business with a completely different risk profile, in our opinion," Shore said. "It is not necessarily bad, but just a very different proposition that should the situation develop further would require further assessment."
By Sam Unsted; [email protected]; @SamUAtAlliance
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
C&C GroupGreene King