Carlsberg soft-drink deal packs an appealing punch
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to fix typo in paragraph one.
By Aimee Donnellan
LONDON, July 8 (Reuters Breakingviews) -Carlsberg’s CARLb.CO Jacob Aarup-Andersen has finally satisfied his thirst. On Monday, the boss of the Danish brewer said that he had agreed a deal to buy J2O-maker Britvic BVIC.L for 3.3 billion pound ($4.2 billion) in cash, after making a third offer. Despite a post-announcement pop, Carlsberg’s shares are still well below their levels before the deal talks. Investor scepticism looks short-sighted.
Carlsberg was clearly keen on swallowing Britvic. The $18 billion bidder, whose collection of beers includes Tuborg and Kronenbourg, saw two previous offers rejected. But Andersen was not deterred and on Monday announced success with a new offer of 13.15 pounds per share, which was 5% above the previous bid and 36% higher than Britvic’s undisturbed price.
The Danish acquirer’s shares rose slightly on Monday morning, perhaps because investors feared that Anderson would pay a much higher price. Still, Carlsberg’s stock is about 8% below its level on June 19, the last day before deal speculation became public. Rival European brewers are either flat or down 4%, suggesting that the market takes a dim view of Anderson’s Britvic binge.
But his pursuit of the soda-to-juice group makes sense. Britvic, which makes soft drinks and premium cocktail mixers, can take advantage of increasing demand for low and non-alcoholic drinks, as health-conscious consumers are shifting away from booze.
Andersen can also just about justify the price. Assume Britvic’s operations deliver 307 million pounds of operating profit in three years’ time, as analysts expect, according to forecasts gathered by LSEG. Add in the 100 million pounds of savings that Andersen expects from the deal, tax the whole lot at 21%, and Carlsberg would get about 322 million pounds back from the transaction in 2027.
That implies an 8% return on the acquisition’s 4.1 billion pound enterprise value, which is pretty close to Britvic’s own estimate of its cost of capital of around 8.5%. Expected, but unquantified, revenue boosters would probably get Anderson over the line. Both Carlsberg and Britvic are major bottlers for PepsiCo PEP.O. The combined group should be much better placed to win more business from the U.S. cola giant, since it would be Europe’s largest bottling company. Pepsi itself has already backed the deal, agreeing to waive a change-of-control clause in its agreements with Britvic.
That’s encouraging for Anderson and investors in Carlsberg. It’s rare that a major deal ticks an important strategic box while also looking defensible on financial grounds. Carlsberg’s Britvic punt deserves a little more investor love.
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CONTEXT NEWS
The boards of Carlsberg and Britvic on July 8 said that they had agreed a deal in which the Danish brewer will buy the British soft-drink maker for 13.15 pounds in cash, implying an equity value of 3.3 billion pounds ($4.2 billion).
The deal comprises a 25 pence per share dividend, payable before the deal closes, and a subsequent 12.90 pound cash takeover offer.
The companies said that the terms implied a 36% premium over Britvic’s closing share price on June 19, which was the last trading day before speculation about a possible takeover.
The joint statement said that the deal would strengthen the enlarged group’s relationship with PepsiCo, with which both Carlsberg and Britvic have a bottling deal. The U.S. cola giant has agreed to waive a change of control option embedded in its bottling contract with Britvic.
Shares in the UK-listed target rose by 4.6% to 12.66 pounds as of 0917 GMT on July 8, or just 4% shy of the cash offer price.
Carlsberg’s shares were up 3.1% to 863.4 Danish crowns.
Carlsberg share-price change vs. rivals amid Britvic deal talks https://reut.rs/3xF1FFg
Britvic’s trailing price-to-earnings multiple vs. listed peers https://reut.rs/3VSTNrz
Editing by Liam Proud and Streisand Neto
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