Proof that 7UP, J2O and Lipton Ice Tea are no training ground for negotiating with a beer group. Three rounds from Carlsberg and the Britvic board has already keeled over — happy to swallow a cash bid at £13.15 a share, valuing the soft drinks outfit at £3.3 billion, or £4 billion including debts.
What sort of Fruit Shoot-out is that? Even the board, chaired by Ian Durant, sounded mixed up about agreeing the deal, having first batted away £12 and £12.50 a share. Flick to the bit in the offer missive on “reasons for the recommendation” and they begin with a ton of reasons for not recommending it.
There’s the “breadth” of Britvic’s “portfolio of strong, family favourite brands” and its “long-term partnership with PepsiCo”. Then its “track record of sustainable revenue and earnings growth” since chief executive Simon Litherland took charge in 2013: total shareholder returns of 259 per cent, or an annualised 12 per cent, “significantly outperforming all relevant indices”. Plus recent growth “ahead of the robust soft drinks category” and the free cashflow to have delivered three £75 million share buybacks.
In short, a business bubbling along nicely — and one that could even have a more effervescent future, after the trials of Covid, the sugar tax and raw material inflation. So why is the board rolling over for a mere 36 per cent premium? It’s only 5 per cent more than the second proposal that Durant and co said “significantly undervalues” the business. How can so little extra turn it into a “compelling” bid?
True, things aren’t quite that simple. Carlsberg’s offer equates to a record price for Britvic shares — up 5 per cent to £12.64 on news of the deal. Their pre-bid high was a bit over £10. And the take-out multiple of 19.2 times earnings, on Goodbody forecasts, is well ahead of the 14.6 times they were trading at pre-offer. Yet couldn’t that say more about the London market’s mispricing of FTSE 250 companies?
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Yes, some analysts thought £13 would be enough for the board to Tango, though maybe not to sell. Yet what looks to have swung things is Britvic’s bottling deal with PepsiCo in Britain and Ireland for the likes of Pepsi Max and Mountain Dew. It accounts for half of Britvic’s £1.75 billion sales and PepsiCo has clearly been throwing its weight around. Britvic noted how it had the “ambition to drive the consolidation of its bottling partners across contiguous markets”. And Carlsberg fits the bill, already doing European bottling for PepsiCo in Norway, Sweden and Switzerland. Before it even approached Britvic, Carlsberg squared off PepsiCo. And, notably, PepsiCo’s Europe chief, Silviu Popovici, backed the tie-up.
Couldn’t Britvic have played harder ball? Its UK deal with PepsiCo, going back to 1987, runs until 2040. After Carlsberg’s £12.50-a-share tilt, Canaccord analysts said it was “probably one of the most undervalued offers in the world”, arguing Britvic shares could reach at least £14.41 over the next three and a half years “just continuing business as usual”. And the main winner here looks to be Carlsberg chief Jacob Aarup-Andersen, who’ll be adding a quality soft drinks wing and annual synergies of £100 million to his No 4 position in UK beer: one he boosted, too, via a £206 million deal to buy out Marston’s 40 per cent stake in their brewing joint-venture. As for Britvic, it’s selling up for too little fizz.
Dodgy foundations
No more Nimby nirvana. Apparently, they’ll be getting a housing estate, onshore wind farm and whatever piece of nationally critical infrastructure our new government fancies — at least if you believe Rachel Reeves.
Her first speech as chancellor made the right sort of pledges, not least on the housing front. And Labour doesn’t have a lot to beat. The most recent two Tory regimes brought us a Liz Truss mini-budget that sent mortgage rates soaring, followed by a successor in Rishi Sunak who crumbled in front of his backbenchers and axed mandatory housing targets for local authorities. Reeves is thankfully restoring them, vowing to get 1.5 million houses built in the next five years.
Still, home truths don’t hurt. History shows that since 2006, when Tony Blair first brought in the 300,000-a-year new homes target, it’s never been hit once. It’s not ministers but private developers who do the building — and they’re focused on profitably managing supply and demand, not hitting national targets. An extra 300 planners will help but won’t make up for their evisceration under the Tories: the Royal Town Planning Institute found net spend on local authority planning departments fell by a real-terms 55 per cent to £480 million between 2009-10 and 2020-21. And, post-Brexit, Britain has a construction skills shortage. Simon Harris at recruiter Randstad thinks we need 500,000 more workers. Reeves’ plans, however welcome, won’t be enough to raise the roof.
Easy landing
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Few want to fly with a felon. But that’s what passengers will be doing every time they board a Boeing aircraft. How come? Because the plane maker has opted to plead guilty to a criminal fraud charge relating to the two crashes of the 737 Max in Indonesia and Ethiopia that killed 346 people.
Boeing has agreed to pay a $244 million fine for breaching 2021’s $2.5 billion US settlement over charges it deceived American safety regulators about the Max’s flight-control software that sent the plane into a fatal nosedive. And, if a federal judge approves, this way it’ll avoid a trial that would have usefully shed more light on its faulty processes before the crashes. No wonder lawyers for the victims’ families called the deal a “slap on the wrist”. You doubt US justice would have offered Airbus a similar get-out.
