This week Carlsberg announced its £3.3B acquisition of Britvic having had an earlier offer of £13.15 per share rebuffed by the U.K. soft drinks group.
So what was behind the deal and what does it mean for Carlsberg and the UK beverage market going forwards?
At first glance a move for a U.K. soft drinks giant seems strange particularly given Carlsberg’s stated strategy of focusing on premium beer, near beer and Asia. However scratch beneath the surface and we start to get a sense of what was behind it…
Carlsberg’s reasons for the deal
- The cost synergies, which it put at a juicy £100M pa
- The opportunity to acquire a stable, well-run business which Britvic undoubtedly is
- The value of a total beverage approach, citing markets where it has combined brewing and soft drinks operations and enjoys above average margins. Here we are more sceptical
Whatever one thinks of the deal though, what it does point to is that Carlsberg clearly sees few meaningful, attractive and accessible opportunities to invest in beer and therefore rather than continue to distribute cash to shareholders through buybacks (something some would say demonstrates a lack of ideas), they decided to go big with an acquisition where hard and meaningful synergies can be captured. Longer-term the move also points to a possible future M&A direction for Carlsberg, that of consolidating the PepsiCo bottling network across Europe, albeit with net debt >3x EBITDA following the deal we’ll have to wait a few years before we see if this pans out.
What are the implications for the UK market?
In truth, it’s hard to see much changing. It’s unlikely that the deal will serve as any more of a catalyst for Carlsberg in the UK than the now-dead JV with Marston’s did. And whilst the temptation may be to parachute in Carlsberg execs to run the soft drinks’ side, we expect them to leave it well alone – if it ain’t broke don’t fix it.
So was this, as CEO Jacob Aarup-Andersen will have pitched to investors, probably the best deal in the world? The truth is ‘probably not’ but it was an interesting and bold move by the Danish brewer nevertheless and for that they deserve credit. Congrats to all those involved in the deal and best of luck to Carlsberg Britvic in the future!.