How much could Carlsberg get for Holsten
Now that Carlsberg’s exit from the German market seems imminent – the Danes are rumoured to be in finishing talks with Radeberger Group over the sale of their Holsten unit – it’s time to ponder Carlsberg’s motives for entering and leaving.
Many think that Carlsberg’s strategy to go south into Germany “went south”, metaphorically speaking, because the Danes did not properly take into account the many problems associated with being an “also-ran” in Germany’s perennially declining and still highly fragmented beer market.
That would mean that Carlsberg failed in its original plan to become a big time mover in Germany, but eventually saw sense and sold out to the highest bidder.
Consider for a second that Carlsberg never intended to consolidate the German beer market by continuing the Holsten strategy of buying up market share. What if the Danes just wanted to milk the Holsten assets dry? What does this make Carlsberg? Think! The answer is that this would make Carlsberg a private equity outfit by another name.
Remember that when Carlsberg bought Germany’s then number two brewing group Holsten AG in 2004 , they paid EUR 38 each for 13.75 million shares. That’s EUR 522.5 million. Add to that the expenses for the subsequent squeeze-out plus a few extra costs, and the total purchase price came to perhaps EUR 550 million. At most.
However, the immediate sale of the Licher and König breweries and the non-alcoholic beverages unit flushed at least EUR 400 million into Carlsberg’s coffers.
All in all, we are probably right in assuming that the Holsten purchase paid for itself.
The draw-back was that what remained of the original Holsten only warranted the group’s rank as fifth largest brewer in Germany.
Since then Carlsberg’s rank has dropped further as over the past few years Carlsberg has sold off or, rather, got rid of three more breweries, which all went to private label producers for a song.
Carlsberg’s policy of scaling down its discount label business (read “offloading of underperforming units”) has left Holsten with two breweries: one in Hamburg and one in north-eastern Germany, Lübz.
Though small, these are profitable businesses with a turnover of perhaps slightly under EUR 300 million.
So far private equity would not have done things any differently.
To what extent Carlsberg has been extracting cash from Holsten (another thing private equity does) we will probably never find out – unless Radeberger does a “kiss & tell” once Germany’s number one brewing group runs the show at Holsten.
Unfortunately, the final exit – the sale of the remaining two breweries – does not seem to be running as smoothly as the Danes may have hoped. We heard on the grapevine that Carlsberg has been offering Holsten to everybody like sour beer and that Radeberger Group is the only one to have shown any interest.
Which raises an interesting question: how much could Holsten be worth to a buyer? In situations like this where there is only one buyer ... and the seller is desperate to get out … there is ample downward pressure on multiples. We would not be surprised if Carlsberg’s German unit went for less than 5 times EBIT or about EUR 100 million, give or take a few million.
Rest assured that the Danes are not going to make a killing. But since they have never put any dosh behind Holsten, whatever they realise through a sale will be an extra bonus.
Who’s to say that Carlsberg does not know how to act like private equity?
