The wave of consolidation in the in the pub and brewing sector is continuing and the latest deal in this sector if the purchasing of pub giant and brewer Greene King by Hong Kong operator CKA.
About 2,700 pubs, restaurants and hotels in total across the UK is owned and operated by Suffolk-based Greene King. The value of Greene King according to the deal is £2.7bn.
It was just last month that the sale of Ei Group – once known as Enterprise Inns by the pub group Stonegate Pub, which owns the Slug and Lettuce chain, was announced for a deal worth £1.3bn. The previous deal in the sector was announced two months ago when Japan’s biggest brewer Asahi bought all of the drinks business of Fuller’s, the brewer whose beers include London Pride.
CKA shared “many of Greene King’s business philosophies”, said Greene King chief executive Nick Mackenzie.
“They understand the strengths of our business and we welcome their commitment to working with the existing management team, evolving the strategy and investing in the business to ensure its continued long-term growth,” he added.
The terms of the deal were “fair and reasonable”, said Greene King’s directors and added that the merger would be unanimously suggested to be accepted by the shareholders.
There was a surge of more than 50 per cent in the share price of Greene King since the announcement of the deal.
But while the shareholders could be elated by the deal, it would potentially not be welcomed to the same extent by customers, said Neil Wilson, analyst at Markets.com.”I think we can comfortably expect more pub closures. It’s a whopping [price] that implies CKA sees significant value in the property portfolio,” he said.
There were no plans of CKA to make “material changes” to the group and the management of the staff members, said Greene King in its statement. It also said that CKA did not intend to “initiate any material headcount reductions within the Greene King organisation as a result of the acquisition.”
There has been a wave of closure of pubs because of customers choosing to spend less on going out as well as pressures from rising costs. For example, according to property firm Altus Group, there was closure of almost 1,000 pubs in the UK last year.
While less alcohol is being consumed by the younger generation in general, the older generation is intent on saving money and is choosing to drink at home, said the industry group the Campaign for Real Ale (Camra).
In addition, new taxes like high Beer Duty, VAT and business rates have also hit the pub industry.
This sector is turning out to be attractive to investors because of the properties that pubs owned, said Wilson. “Greene King owns the freehold or long leasehold on 81% of its properties. The company recently carried out a revaluation of its property estate that indicated a market value of £4.5bn against the £3.5bn book value,” he said.
(Adapted from BBC.com)