AB-InBev sell Tennent’s to Irish cider group C&C

The financial markets applauded C&C’s decision to buy Tennent’s from AB-InBev by sending C&C’s shares up 13 percent on the day the conditional deal was announced.

C&C said Tennent’s (1.7 million hl in 2008) is Scotland’s leading lager brand, accounting for 55 percent of lager shipments to pubs by volume and half the sales through retailers.

The business sold by AB-InBev had sales of GBP 162.2 million (EUR 185 million) and normalised EBITDA of GBP 21.8 million (EUR 24.9 million) in the year to December 2008.

C&C expects the deal to immediately enhance its earnings per share, with further benefits accruing on the back of an expected GBP 10 million in synergies by 2012, likely to arise mainly in distribution. C&C achieves an estimated 15 percent to 20 percent of its UK sales of Magners in Scotland and thinks that it can increase that because of the grip Tennent’s has on the Scottish market.

Analysts say the deal will add about 4 percent to C&C’s earnings in the first full year, potentially rising to between 8 percent and 10 percent as synergies are achieved.

The price includes a GBP 27 million (EUR 30.8 million) on-trade loan book (loans to pubs), the Wellpark brewery in Glasgow and the distribution rights to certain AB-InBev brands in Ireland, Northern Ireland and Scotland, including Tennent’s, Stella Artois and Becks, it was reported.

While the deal’s multiple at 8.3 times EBITDA pre-synergies (5.7 times if synergies are secured) is not cheap, the deal could significantly improve C&C trading prospects in Northern Ireland and Scotland, given that Tennent’s is Scotland’s leading beer brand.

What is more, the deal improves C&C distribution capabilities in Scotland, a key criticism that has been lodged against C&C’s investment strategy for some time.

It will also enhance the group’s ability to roll out draught cider in conjunction with the draught product range from the deal.

In effect, this deal marks a significant shift in strategy for the C&C group from being overly dependent on one product (cider) and one market (Ireland).

C&C will fund the deal from its cash and existing loan facilities. The acquisition is subject to shareholder approval and regulatory consent.

Given the recent spade of negative news surrounding Diageo’s plan to close the Johnnie Walker bottling plant in Kilmarnock and the Port Dundas distillery in Glasgow with the loss of 700 Scottish jobs, the takeover of Tennent’s has sparked fears for the future of its 300-strong Glasgow workforce.

The C&C group warned that it may move its packaging operation from Glasgow to Ireland if it proved to be economically viable.

However, the possibility that Magners cider production could be brought to Glasgow was dismissed.

The Wellpark brewery produces around 2.1 million hectolitres of lager each year, and operates on a far larger scale than C&C’s existing Magners plant in Ireland, it was reported.

Tennent’s will be the biggest brand in the C&C portfolio, which the new owners said would allow Tennent’s more attention than it received from current owners AB-InBev.

"Tennent’s is an iconic brand, and in a sense by putting Tennent’s into our business it’s a big fish in a much smaller pond, which creates opportunities for that brand," C&C’s CEO John Dunsmore was reported as saying.

Mr Dunsmore should know: It was only in November last year that the former boss of brewer Scottish & Newcastle had been brought in to turn the ailing cider firm C&C around.

Sales of cider have stalled in recent years after enjoying a meteoric rise in the early years of this decade.