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Tue 6th Jan 2015 - C&C Group drops bid for Spirit Pub Company
C&C Group drops bid for Spirit Pub Company: Magners producer C&C Group has announced that it does not intend to proceed with an offer for Spirit Pub Company as a combination with Spirit “no longer meets the Group’s risk adjusted return criteria”. The move was widely expected and leaves the way clear for Greene King’s recommended bid for Spirit, which is likely to be complete by early summer. Greene King chief executive Rooney Anand told City analysts in November that a combined Greene King and Spirit Pub Company would create the UK’s leading pub company, “particularly the leading retail pub company” with a managed estate of more than 1,800 pubs (and a total estate of 3,100 pubs). Anand said: “The logic of bringing the two businesses together is very clear and very compelling – this will allow us to accelerate on a path we are already on.” He added that Spirit chief executive Mike Tye and his team had done a “very good job in highlighting the underlying quality of the Spirit estate in the last few years” and the time is right to combine the two businesses. Anand described the deal as transformational – “the largest transaction we’ve carried out” – although argued it was not the first transformational deal for the company, referring to the company’s Laurel Pub Company deal as similarly transformational in terms of making retail the focus for the company. He also noted that the pub market is a mature one and “ready for consolidation” some 500 years after it began. “There is a return to mergers and acquisitions activity after a long period of calm,” he said. Anand said the two businesses fit in a complimentary manner – “the jigsaw pieces fit nicely”. Of the total of 3,100 pubs, 83% are freehold or long leasehold. More than 1,000 sites within the combined pub estate are located in London and the South East. Food accounts for 42% of combined managed sales with drinks sales triggered by food occasions accounting for another 20% of total sales. Greene King and Spirit managed pub produce similar per site Ebitda on similar weekly average sales per pub – the combined managed Ebitda is £204,000 per site per annum with average weekly turnover per pub at £18,000 per week. Anand said the enlarged company would be in a position to apply the best brand within the portfolio where Spirit and Greene King pubs are clustered. He stressed that there would be “open-mindedness” in applying capex to converting Greene King sites to Spirit brands and Spirit sites to Greene King brands – as well as investing in the circa 100 uninvested Spirit sites. Analysts were shown a slide that indicated five Greene King and Spirit brands – Fayre & Square, Hungry Horse, Meet and Eat, Flaming Grill Pub and We Love Flame Grill – operate in the same value food part of the market. The slide showed that Greene King and Spirit each have brands in similar markets position in other segments – Spirit’s Chef & Brewer parallels Old English Inns and Spirit’s Taylor Walker and Metropolitan Pub Company occupy the same premium end quadrant. The addition of 443 leased and tenanted Spirit pub would improve the overall quality of the enlarged tenanted estate with average Ebitda of more than £90,000 within Spirit per site versus £70,000 within the Greene King estate. Asked whether Greene King had considered increasing the 8p cash element of its Spirit offer, Anand said the Spirit board had indicated it regarded Greene King paper as very attractive. “As good as the stuff with the Queen’s picture on,” added Anand. It is expected that the Greene King and Spirit tie-up will complete towards the end of the First Half of 2015. The company has stressed that total head-count across the two companies is expected to reduce by less than 1%.


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