Phew, the relief! For the first time since the lockdown here was a story that was not about coronavirus. And what a story: Marston’s to exit brewing.
Well, almost. When its £780 million brewing joint venture with Carlsberg was announced, I described it as an acceleration of “the redrawing of Britain’s brewing landscape” and I see no reason to change my view.
What a deal for Ralph Findlay and his colleagues. After years of paying a generous dividend and trying to persuade the City that the group’s rather elevated borrowings were not a “debt mountain” so much as a cheap funding source, here was a deal to put a £273 million dent in Marston’s debt.
It was also the deal Findlay had been looking for to confound the investment community, which for so long had ascribed pitifully little value to an increasingly impressive brewing business (a sentiment a certain Simon Emeny at Fuller’s could sympathise with).
The irony, of course, is that the company’s landmark deal to prove what a valuable beer business it has built came in the middle of the (temporary) closure of its pub business, which since the end of March has contributed not a penny of revenues.
Let’s have a look at the basic terms of the JV. The deal, creating the Carlsberg Marston’s Brewing Company (CMBC), values the Marston’s brewing business at up to £580 million - an impressive figure - and its Danish partner’s UK division at £200 million. On top of a 40% stake, Marston’s will receive £273 million of cash while Carlsberg emerges with a 60% stake and operational control.
The chief executive of CMBC, which will have underlying earnings of £65 million, will be Tomasz Blawat, the managing director of Carlsberg UK, while Ralph Findlay, the Marston’s chief executive, will be non-executive chairman. Richard Westwood, the impressive managing director of the Marston’s brewing business, will be appointed “chief operating officer, integration” - (though what happens after the integration is completed is rather unclear).
Perusing the smallprint of the offer document, I am reminded of what a great beer business Messrs Findlay and Westwood have built up. It has six breweries and 11 depots and distribution centres producing household names like Hobgoblin, Wainwright, Brakspear, Young’s, Courage, Banks’s, McEwan’s and, last but not least, Marston’s Pedigree (made at the Cathedral of Brewing under the hallowed Burton Union system, don’t forget). And not only does the group distribute directly to 11,000 customers up and down the country, but it also exports 19 brands to more than 50 countries, including key markets like Russia, Canada, France, Italy, Germany and the US. Marston’s also has a decent track record of developing brands under exclusive license or distribution agreements, including Shipyard, Estrella Damm, Erdinger and Kaltenberg.
But never mind all that. What people really want to know is whether this landmark deal is a precursor to an eventual complete exit from brewing for Marston’s and whether any breweries from the combined beer business – Carlsberg UK has a mega-plant in Northampton and a craft brewery in Hackney - will be closed in pursuit of the promised £24m of cost synergies by the end of year three (which I am assured will be easily exceeded).
As you would expect, the issue of a complete exit was just about the first thing I asked a jubilant Findlay after the transaction had been announced. His answer was more candid than I had expected: “There are various exit clauses contained within the terms but our intention is very much long term.” In other words, there is an agreed mechanism to allow Marston’s to sell the remaining 40%, but not just yet. Mind you, he did not attempt to hide the implications of the transaction, declaring it to be “a huge deal in the history of Marston’s as it represents a move away from the company being in control of its beer business”. He added: “Operationally it will be a pub operator.”
On the question of the potential rationalisation of the JV’s eight breweries, I expected him to deflect the question by emphasising the importance to its beer brands of making them in their traditional breweries. In fact, he gave me another instructive response: “It will be down to the joint venture what it does with the brewing network.”
Which sounded ever so slightly like Findlay saying “it’s nothing to do with me” – even though he will be chairing the JV, of course.
Encouragingly, he was quick to play down the prospect of job losses, arguing that the £24m-plus of synergies were predicated on logistics and procurement savings rather than redundancies.
As for Carlsberg UK, this deal strikes me as a bold and imaginative attempt to return to the top table of the UK brewing industry after years of falling behind the pace. Indeed, it is the Danish brewer’s second bold move in recent times. Last year, the Tetley’s owner scrapped its poorly regarded standard lager brand, admitting in a cheeky ad campaign that it was “probably not the best beer in the world”, and launched a revamped version with more depth and hop flavor, dubbed Carlsberg Danish Pilsner. An altogether sexier proposition!
David Buttress has long since left Just Eat, but I still recall him telling me that the key to success in the takeaway delivery market was to be the biggest in each market in which you operate. His “number one or nowhere” mantra has reverberated ever since as the big European players, Just Eat, Delivery Hero, Takeaway.com, have played a game of pass the parcel to create a clear number one in each market.
Takeaway.com has moved on to the next phase, however. In the space of barely four months it has consummated a £10bn merger with Just Eat and announced a $7.3bn all-paper takeover of the US group Grubhub. Jitse Groen, the boss of Just Eat Takeaway.com (or whatever it changes its name to after the Grubhub deal) is now pursuing global domination. His swashbuckling approach is very exciting, but the execution risk of integrating two mega deals in such short order must surely be sky high. Let’s hope the Flying Dutchman doesn’t contract a nasty case of indigestion.
Dominic Walsh: On the Marston’s and Carlsberg JV, and Just Eat
Phew, the relief! For the first time since the lockdown here was a story that was not about coronavirus. And what a story: Marston’s to exit brewing. Well, almost. When its £780 million brewing joint venture with Carlsberg was announced, I described it as an acceleration of “the redrawing of Britain’s brewing landscape” and I see no reason to change my view.