C&C shares slide after Spirit Pub approach

C&C Group, the Dublin-based manufacturer of Bulmers and Magners cider and Tennents lager, suffered a share price fall of more than 11 per cent on Friday, after launching an approach for Spirit Pub Co, whose brands include Chef & Brewer and Taylor Walker.

The board of Spirit has rejected the proposal and is awaiting a firm offer from Greene King. Spirit has already said it was willing to accept the Greene King proposal.

At the close of trading on Friday, Greene King's proposal was worth 111p per share. C&C's proposal is thought to have been worth in the same region but has a stronger cash element. Spirit shares closed up just under 1 per cent at 107.25p on Friday.

C&C was in no mood to concede defeat, despite the negative market reaction and adverse comment from some analysts.

Several expressed surprise at the approach. Nomura downgraded C&C, saying buying Spirit would represent "a significant step-away" from its historic strategy of being a brand-led wholesaler to giving over more than half its business to running pubs.

According to Nigel Parson of Canaccord Genuity, there was not much synergy in the proposed deal. "You guarantee yourself a shop window, but it's an expensive way of doing it," he said.

People with understanding of C&C's thinking admitted the share price reaction showed the company had not done enough to outline to shareholders why buying a pub company made sense.

C&C's rationale is that while its wholesale model and brands portfolio worked well in Ireland and Scotland, its routes to the England and Wales markets were not as strong.

It faces stiff competition from Heineken, which integrates its beer and cider brands with its Star Pubs and Bars, consisting of about 1,250 UK premises.

"It's an area of weakness versus the rest of their portfolio," said Edward Mundy of Nomura.

That would be solved by "a strengthened route to market for C&C's long alcohol drinks brands in the on-trade across England and Wales matching the recognition it enjoys in its other core markets", C&C said in a statement on its rejected proposal.

C&C drew attention to the experience of its management team in running a vertically integrated pubs and alcoholic drinks business.

Stephen Glancy, chief executive, and Kenny Neison, group finance director, both previously worked at Scottish & Newcastle until the break-up of the brewing and pub business in 2008.

Under their stewardship, C&C purchased Tennent in 2009, sold the spirits division in 2010, and bought Vermont Hard Cider Company in the US in 2012.

These moves showed a willingness to shake-up the business, said Liam Igoe, analyst at Goodbody. "They are people who are prepared to change the profile of the business and to move in a new direction," he said.

But according to Jeffrey Harwood of Oriel Securities, C&C may have to come up with an all-cash offer if its approach is to be taken more seriously.

"For Spirit shareholders, if there's going to be paper, Greene King is a known quantity in the same industry," he said. "C&C is much more of an unknown."

Spirit and Greene King declined to comment. Greene King is working on a firm offer and has until October 30 to deliver it. C&C has until November 20.

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