Pub

Marston’s has announced the sale of its 40% interest in Carlsberg Marston’s Limited to a subsidiary of Carlsberg for £206m in cash.

The deal will establish Marston’s as a purely focused pub business where it sees significant opportunities for further growth.

It delivers on the company’s de-leverage strategy, creating a stronger balance sheet and a step change in financial flexibility.

Marston’s will continue its partnership with CMBC through the long-term brand distribution agreement which remains in place.

The valuation represents an enterprise value multiple of 14.5 times EBITDA and 24.3 times EBIT for the 12-month period ended 31 December 2023.

The proceeds will be used for significant debt paydown, achieving a medium-term target of <£1bn of net debt (excluding IFRS 16 lease liabilities) in a significantly accelerated time frame.

The board of directors believe the value of the proposed transaction represents an attractive result for shareholders, with Marston’s interest expense reduced by c.£18m annually.

Justin Platt, chief executive, said: “Today’s announcement represents a significant milestone for Marston’s as we realise our stake in CMBC. In my first six months with the business, it has become very clear to me that our core capability and key opportunity to unlock value for shareholders is in driving a focused and successful pub business.

“This deal further strengthens our balance sheet, significantly reducing our debt by over £200m. In addition, CMBC remain valued strategic partners and we continue to benefit from our ongoing long-term brand distribution agreement with them. Crucially, it allows us to become a pure play hospitality business and focus on what we do best - namely, giving our guests amazing pub experiences. I look forward to delivering on the opportunities a focused pub business will provide to ensure we maximise value for our shareholders.”

Marston’s has a suburban-dominated, predominantly freehold estate of c.1,370 pubs combined with a balance of managed and partnership, tenanted and leased pubs, which allows the group to optimise its offering and deliver a highly cash generative operating model.

The transaction demonstrates management’s preparedness to take “decisive steps” that will drive shareholder value.

In 2020, CMBC was formed to combine the strengths of Marston’s and Carlsberg, leveraging complementary drink portfolios and an extensive distribution network. Over the last three years, this partnership has played a significant role in enhancing CMBC’s customer offering.

Whilst Marston’s believes that CMBC is well-positioned for future success as a market leader under Carlsberg’s sole ownership, they have been challenged by a number of unforeseen macro and socio-economic factors, including Covid-19, higher operating costs and inflation.

Furthermore, as announced on 2 July 2024, the licensed production and distribution agreement for San Miguel with CMBC in the UK will not be renewed beyond 31 December 2024.

The transaction also removes the distraction of non-core assets over which Marston’s has no day-to-day operational control and enables further simplification, removing volatility and uncertainty within Marston’s earnings profile.

Completion is targeted before the end of September 2024.

In the 20 months to Sep 2023, Marston’s recieved £9.9m in income from CMBC, but in the six months to March 2024, the contribution was negative (£0.6m).

CMBC’s value of £220m is down from £250m in 2023, and £260m in 2022.

Marston’s will continue to be focused on debt reduction, and expects to put financing in place that is better suited to the new level of leverage.

The transaction is expected to be accretive on adjusted earnings per share when taking into account the interest cost savings.

J.P. Morgan Cazenove is acting as sole financial adviser and Sponsor to Marston’s, and Slaughter and May is acting as legal adviser to Marston’s.