Carlsberg UK and Marston’s deal combines almost £2bn in sales

By Rod Addy

- Last updated on GMT

Carlsberg UK will be the majority shareholder in the new business, with a 60% stake
Carlsberg UK will be the majority shareholder in the new business, with a 60% stake

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Brewers Carlsberg UK and Marston’s plan to forge a joint venture valued at £780m that would unite two companies wielding sales of almost £2bn between them.

The Carlsberg Marston’s Brewing Company (CMBC) would unite two historic brewers with shared values to create significant value for employees, customers and consumers in the UK market, according to Marston’s.

Based on the latest sets of financial results filed with Companies House, Carlsberg UK boasted gross turnover of £750,000 in the year to 31 December 2018​. Marston’s, meanwhile, chalked up total revenue of £1.2bn in the 52 weeks to 28 September 2019​. The figures include retail, wholesale and contract brewing operations. The businesses employ 2,200 staff in brewing and distribution.

Commenting on the transaction, Mark Lynch, partner at Oghma Partners, said: "This deal I think is going to be typical of the type we see going forward and as a result of the current difficult conditions. For both businesses it generates significant cost saving opportunities which will be needed given the challenging market.

"Second, it provides Marston's with cash to help it re-start its pubs business and provide working capital and funding for bolt-on opportunities – in other words it improves their competitive financial position to survive and take advantage of the crisis. Third, whilst cash is being handed over – by both parties combining their assets in the brewing JV – it overcomes the thorny issue of valuing businesses on current trading patterns.

Improves prospects

For the consumer it may reduce choice in Marston's pubs and with the number of brands available across the market – but it improves the prospects of survival of both the Marston estate and probably most of the brands which is perhaps the bigger picture here."

Greg Johnson, research analyst at Shore Capital, said the move would create "a stronger, more competitive UK brewer with a complementary brand portfolio across ale (Wainwrights, Jennings and Tetleys), lager (Carlsberg, San Miguel, Estrella and Erdinger) and craft (Shipyard, Founders and Brooklyn)"​.

"CMBC becomes the number four player in the UK market, with pro-forma revenues of £800m and market share of c14% across ale and lager,"​ said Johnson.

"The creation of Carlsberg Marston’s Beer Company has helped to unlock the value of its beer business, whilst alleviating concerns over the near-term financial health of the group,"​ he concluded.

'Enviable portfolio of brands'

A statement on the deal​, which was announced on 22 May, read: “Carlsberg Marston’s Brewing Company will offer an enviable portfolio of international, national and regional beer brands, with Carlsberg famous for iconic lager and world beer brands, and Marston’s, one of the UK’s leading brewers of premium cask and packaged ales.”

Marston’s stated the transaction​ valued the Marston’s Brewing Business at up to £580m and the Carlsberg UK Brewing Business at £200m. Cost synergies of £24m are expected to be realised by the end of the third financial year following completion. Combined net assets are estimated at £333m.

Carlsberg UK brands include Carlsberg Danish Pilsner, Carlsberg Export, Poretti, Tetley’s, Somersby cider and the London Fields Brewery craft portfolio, brewed in Hackney, London. It also holds the brand licences in the UK for San Miguel, Mahou and the Brooklyn Brewery craft beer portfolio.

Marston’s brews brands including Hobgoblin and Wainwright

Marston’s PLC is a leading pub operator and independent brewer of premium cask and packaged ales, including Hobgoblin, Wainwright, Marston’s Pedigree and 61 Deep. Marston’s also operates a number of brands under licensing and distribution agreements with global brand owners such as Estrella Damm, Shipyard, Erdinger, Warsteiner and Kirin.

Carlsberg Marston’s Brewing Company has assets including Carlsberg UK’s Northampton brewery, London Fields brewery and national distribution centre, as well as Marston’s six national and regional breweries – Marston’s, Banks’s, Wychwood, Jennings, Ringwood and Eagle – and 11 distribution depots.

Under the terms of the transaction, Carlsberg Marston’s Brewing Company will also have access to Marston’s pub estate for its beer portfolio, which is enshrined through a strategic, long-term supply and distribution agreement.

Carlsberg UK and Marston’s PLC will be the sole stakeholders in Carlsberg Marston’s Brewing Company, with Carlsberg UK being the majority shareholder, owning 60% of the equity. Marston's will hold 40%. Carlsberg UK managing director Tomasz Blawat is to be chief executive of the new entity, with current Marston’s PLC chief executive Ralph Findlay, appointed as non-executive chairman. Richard Westwood, current managing director of Marston’s Beer Company, is to become chief operating officer, integration.

‘Successful relaunch of Carlsberg Danish Pilsner’

Blawat said the move represented “the next phase of our growth strategy”. “After a successful relaunch of Carlsberg Danish Pilsner in the UK last year, we are now building a new beer company by combining two organisations with shared values and strong history and heritage in brewing.

“Our intent for Carlsberg Marston’s Brewing Company is for it to become a platform for growth for all of our customers and suppliers, offering a bigger beer portfolio of complementary international, national and regional brands. We believe the new business will deliver even more value for employees, customers and consumers, thereby creating greater future growth potential.”

Findlay added: “Marston’s strong heritage, extensive distribution platform and established reputation for brewing and logistics excellence, together with Carlsberg UK’s global brand portfolio and scale, combine the best attributes of both to create a compelling beer business with an outstanding portfolio of global and local beer brands, proven brewing expertise, strong distribution network and wholesale opportunity.

“Marston’s will play a key role in the prospects of the combined entity, which represents an exciting new chapter in Marston’s established brewing heritage and future potential, while enabling it to further reduce its debt and focus on maximising value from its high quality pub estate.”

The proposed joint venture is subject, among other things, to Marston’s PLC shareholder approval and competition clearance and will include a consultation process for all Marston’s Beer Company employees in relation to the transfer of their employment.

The transaction is expected to complete in the third financial quarter of this year. Until these processes are completed, it would remain business as usual for both companies, according to the announcement.

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