Notes that C&C’s Current Trading Valuation
of ~7x Normalized EBITDA Is Disconnected from the Strategic Value
of Its Assets and Reflects a Steep Discount to Transaction
Multiples in the Industry
Believes Shareholders Could Conservatively
Receive Between 239.00 and 263.00 GBp Per Share in Value via a
Sale, Which Would Represent a 58% Premium to the Company’s Current
Trading Price at the Midpoint of this Range
Engine Capital, LP, which owns just under 5% of C&C Group
Plc’s (LSE: CCR) outstanding common shares, today sent the below
letter to C&C Group Plc’s Board of Directors.
***
June 24, 2024
C&C Group Plc Bulmers House, Keeper Road, Crumlin, Dublin
12, D12 K702 Attention: Board of Directors (the “Board”)
Dear Members of the Board:
Engine Capital LP (together with its affiliates, “Engine” or
“we”) is a long-term, significant shareholder of C&C Group Plc
(LSE: CCR) (“C&C” or the “Company”), holding just under 5% of
the Company’s outstanding common shares.
We invested in C&C more than four years ago due to the
Company’s high-quality portfolio of brands, leading distribution
position in the U.K. and Ireland beverage markets, strong free cash
flow generation, and the ample opportunities for the Board to
significantly increase shareholder value. Despite these favorable
attributes, C&C has been a perennial underperformer and today
is deeply misunderstood and undervalued by the market because of a
combination of structural and self-inflicted problems. C&C’s
current trading valuation of ~7x normalized EBITDA1 is entirely
disconnected from the strategic value of its assets and reflects a
steep discount to transaction multiples in the private markets,
which have averaged around 13x EBITDA.2
Given these dynamics, we believe the best path forward is for
the Board to explore strategic alternatives for the Company.
C&C remains a unique and strategic asset, which is why we are
confident that buyers would pay a price that is far superior to its
standalone value, especially considering the time value of money
and execution risks (including CEO succession risks). A review of
relevant and comparable transactions indicates that shareholders
could conservatively receive between 239.00 and 263.00 GBp per
share3 in value via a sale, which would represent a 58% premium to
the Company’s current trading price at the midpoint of this
range.
STRUCTURAL AND
SELF-INFLICTED ISSUES HAVE CONTRIBUTED TO C&C’S
UNDERPERFORMANCE AND VALUATION DISCOUNT
C&C has been a perennial underperformer and has failed to
create shareholder value over any relevant measurable period, as
shown below.4
Total shareholder returns over time
Total Shareholder Return
(YTD)
Total Shareholder Return
(1-Year)
Total Shareholder Return
(2-Year)
Total Shareholder Return
(3-Year)
Total Shareholder Return
(Since listed on LSE)
FTSE 250 Index
5.3%
13.3%
14.1%
(1.7%)
17.3%
Peer Group Average
14.6%
25.3%
18.8%
(1.6%)
24.1%
C&C Group plc
4.2%
26.1%
(14.4%)
(30.5%)
(51.7%)
C&C Group vs. FTSE 250
(1.1%)
12.8%
(28.6%)
(28.8%)
(69.0%)
C&C Group vs. Peer Group Average
(10.4%)
0.8%
(33.3%)
(29.0%)
(75.8%)
We believe this underperformance and the Company’s discounted
valuation are the result of structural and self-inflicted
problems.
The structural issues relate to C&C’s small size and the
complexity of its portfolio. The Company is subscale with a small
market capitalization and limited daily trading liquidity. At the
same time, the business is complex with disparate assets with
different financial characteristics across different geographies.
As a result, the Company has no pure play peers of similar size or
geographic composition, making it more difficult for public market
investors to evaluate, diligence, and value it. Given these
dynamics, we believe C&C makes for a poor public company and is
unlikely to ever be properly valued in its current form.
The Company has also suffered from a host of self-inflicted
issues over the last few years, including succession missteps,
strategic mistakes, execution blunders, and an inability to return
to its higher historical earnings profile. The Company has
consistently disappointed operationally and financially, failed to
grow its Magners brand in England and Wales, and its enterprise
resource planning implementation has been mismanaged. This has all
led to reduced customer service levels and increased customer
churn. The Company recently recorded a €125M goodwill impairment
tied to the deteriorating performance of the Magners brand, and it
just announced several prior-year accounting adjustments due to
deficient internal controls. Further, with the recent appointment
of Ralph Findlay, C&C has now had four CEOs in less than four
years5 with the prospect of a fifth chief executive in 12 to 18
months,6 further compounding uncertainty and execution risks.
C&C’S
BOARD HAS AN OPPORTUNITY TO MAXIMIZE
SHAREHOLDER VALUE THROUGH A STRATEGIC REVIEW AIMED AT A
SALE
Given the Company’s underperformance, poor track record of
execution, discounted valuation, and CEO succession risks, we
believe it is time for the Board to consider a different path
forward and explore strategic alternatives for the Company. In our
view, a sale could deliver returns far superior to the standalone
value of the Company, especially considering the time value of
money and the execution risks of attempting to reverse
self-inflicted issues. We urge the Board to take the following
steps with a view toward maximizing value for long-suffering
shareholders:
1. Strengthen the Board
with Necessary Financial and M&A Expertise
As C&C considers whether to explore strategic alternatives,
we believe it is critical to have individuals in the boardroom who
possess the relevant financial skillsets and a shareholder mindset
to assist the Company. As such, we believe the Board should add new
directors with strong financial backgrounds – particularly in
M&A, capital markets, and capital allocation – and add
independent shareholder representation.
2. Initiate a Strategic
Review Process to Monetize the Company
We believe C&C makes for an attractive acquisition target
given the quality of its assets. C&C owns a portfolio of strong
local brands including Tennent’s, the leading Scottish beer brand
(~30% market share); Bulmers, the leading Irish cider brand (~60%
market share); as well as a range of fast-growing, premium, and
craft ciders and beers. The Company is also the number one drinks
distributor to the U.K. and Ireland hospitality sectors, a channel
that is extremely important to the local beverage industry.
Finally, C&C also has multiple manufacturing facilities in the
U.K., which allows the Company to be nimble and flexible and lower
import fees relative to Continental European players.
We suspect the optimal strategic acquiror of C&C’s assets is
a scaled company with a global, established brand that could
optimize marketing expenses, benefit from U.K. manufacturing
capabilities, reduce general and administrative expenses, benefit
from procurement savings, and leverage C&C’s leading
distribution businesses to accelerate the growth of its own branded
and higher margin products. Regardless of whether C&C’s assets
are sold together or transacted separately, a combination with one
or multiple strategic acquirors will create significant synergies.
Additionally, due to its strong free cash flow generation, C&C
is a suitable candidate for private equity buyers, who would be
comfortable using more leverage, and therefore would reduce the
Company’s cost of capital.
Finally, we believe the appointment of Mr. Findlay as CEO for
the next 12 to 18 months is fortuitous as we believe he is
particularly well-suited to lead this strategic review given his
operational credentials, significant industry knowledge, and prior
transaction experience.
3. Incentivize
Management to Ensure the Best Possible Outcome
As the Board begins to evaluate the Company’s strategic
alternatives and what C&C could be worth in the private market,
it is important to appropriately motivate executives critical to a
potential transaction. We encourage the Compensation Committee to
consider a transaction bonus pool for critical employees and the
potential acceleration of unvested securities, as well as potential
change of control payments if an executive is let go within 12
months following a transaction. We believe instituting this type of
compensation framework will go a long way toward calming and
motivating the relevant employees.
In conclusion, we firmly believe that C&C is at a crossroads
today. The Board has a timely opportunity to maximize value over
the coming months under the leadership of Mr. Findlay. It is our
desire to work collaboratively with the Board to improve C&C
and drive value for all shareholders, which is why we request an
opportunity to discuss these important matters further with the
Board. We look forward to engaging with you to discuss these topics
further.
Sincerely,
Arnaud Ajdler Managing Member
Appendix A: Relevant Precedent Transactions
Date Target Acquirer EV/LTM EBITDA
Dec-22 Waterloo Brewing Carlsberg 12.4x Jul-22 Guiness Cameroon
Castel Group 15.6x May-20 Marston's Brewing Company Carlsberg 13.0x
Aug-19 Greene King CK Noble 9.5x Jan-19 Fuller, Smith & Turner
P.L.C. Beer Business Asahi Group Holdings 23.6x Apr-17 BrewDog TSG
Consumer 14.3x Dec-16 Anheuser-Busch InBev SA/NV (CEE Brands) Asahi
Group Holdings 14.8x May-16 Bibendum PLB Conviviality Plc 9.0x
Feb-16 Peroni, Grolsch and Meantime brand families Asahi Group
Holdings 21.6x Nov-15 MillerCoors LLC (58% stake) Molson Coors
Brewing Company 11.5x Nov-15 SABMiller plc Anheuser-Busch InBev
18.9x Sep-15 Matthew Clark Conviviality Plc 8.0x Jan-14 Oriental
Brewery Co. Anheuser-Busch InBev SA/NV 11.6x Jul-13 Oy Hartwall Ab
Royal Unibrew 8.8x Feb-13 Crown Constellation Brands 9.0x Sep-12
Heineken N.V. Asia Pacific Breweries (APB) 17.2x Jun-12 Grupo
Modelo, S.A.B. de C.V. (49.7% stake) Anheuser-Busch InBev 12.9x
Apr-12 Cerveceria Nacional Dominicana Anheuser-Busch InBev 13.0x
Apr-12 StarBev Molson Coors Brewing Company 11.0x Oct-11 Anadolu
Efes SABMiller plc 12.8x Sep-11 Foster's Group SABMiller plc 14.5x
Aug-11 Schincariol Kirin Holdings Company 15.8x Jan-10 FEMSA
Heineken N.V. 11.3x Sep-09 Tennent's C&C Group 8.3x Apr-09 Lion
Nathan Kirin Holdings Company 13.2x Jul-08 Anheuser-Busch InBev
N.V./S.A. 12.4x Jan-08 Scottish & Newcastle Limited / Baltic
Beverages Holding AB Carlsberg 12.2x Jan-08 Scottish &
Newcastle Limited Assets Heineken N.V. 12.9x Nov-07 Royal Grolsch
N.V. SABMiller plc 14.4x
Median 12.9x
Average 13.2x Notes: (1) Data per publicly available
filings and company materials (multiples include estimates based on
public info)
***
About Engine Capital
Engine Capital LP is a value-oriented special situations fund
that invests both actively and passively in companies undergoing
change.
_______________________
1 Normalized EBITDA (Excluding IFRS 16) of
~€110.5M per Engine’s estimates. Assumes share price as of June 21,
2024 close of 159.00 GBp.
2 See Appendix A.
3 This range assumes a transaction between
10x and 11x normalized EBITDA and is inclusive of free cash flow
generated through the current fiscal year end (February 2025).
4 Calculated as of June 21, 2024. Total
Shareholder Return since LSE listing as of October 8, 2019, which
represents the first day C&C shares were publicly listed on
LSE. Peer group per the Company’s 2023 annual report.
5 Steward Gillilan (January – November
2020), Davide Forde (November 2020 – May 2023), Patrick McMahon
(May 2023 – June 2024), and Ralph Findlay as of June 2024.
6 A fifth CEO will have to be selected in
the next 12 to 18 months per the Company’s announcement.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240624711444/en/
For Investors: Engine Capital LP 212-321-0048
info@enginecap.com
For Media: Longacre Square Partners Charlotte Kiaie /
Bela Kirpalani, 646-386-0091 ckiaie@longacresquare.com /
bkirpalani@longacresquare.com