Analysts say C&C’s takeover of Tennent’s lager will boost the Scottish beer brand, write Ian Fraser and Mark Paul
It was a Celtic sweep that caught many drinks analysts and industry observers unawares. After eight months of secret talks, C&C Group, the Dublin-based maker of Magner’s cider, agreed on Thursday to a £180m takeover of Tennent’s lager, Scotland’s leading lager brand, from the heavily indebted US-Belgian-Brazilian giant Anheuser-Busch Inbev.
Several beer companies including Molson Coors, owner of Carling, SAB Miller and Greene King, owner of Belhaven, had been eyeing the Inbev assets, which as well as Tennent’s lager also include the Irish and Scottish rights to Inbev brands Stella Artois, Beck’s, Hoegaarden, Leffe and Budweiser.
US-Canadian group Molson Coors is understood to have offered a higher price for the businesses but Inbev chose C&C’s lower offer because it was not already a competitor, and it wanted to avoid a competition inquiry.
John Dunsmore, the former Scottish & Newcastle boss who has run C&C since November, said: “We are a strategically attractive partner for AB Inbev because we are an outsider and we don’t have a beer business.”
Inbev has had to embark on a fire sale of assets around the world to satisfy its bankers.
It wants to offload $7 billion (£4.3 billion) of assets this year after getting caught by the credit crunch following its $52 billion cash acquisition of Anheuser-Busch last year. Tennent’s lager is described by analysts as having been run as a “cash cow” by Inbev.
The iconic Scottish brand still commands a 55% share of lager sales in the Scottish on-trade (pubs and bars) and 30% of off-trade (shop) sales. But even though it still sponsors the music festival “T in the Park” and the Scotland football team, the brand has been starved of advertising support in recent years, and industry sources say healthy margins have been depleted. All beer brands have been suffering from falling sales, pub closures and the rise of national pub chains negotiating tough prices.
One industry source said: “Tennent’s is still an iconic brand but it needs some serious rebranding. It was a peripheral brand for Inbev and has been starved of investment in recent years. I expect C&C will be a more committed owner than Inbev, which acquired the brand from Bass in 2000.
“Now that Tennent’s lager is back in the hands of a brand builder, I’m sure everyone at Tennent’s will be delighted. They’ll also be delighted to see the back of the Brazilians, who were a bunch of asset-strippers.” He was referring to Ambev, formerly Companhia de Bebidas das Américas, Latin America’s largest brewing company, formed from the 1999 merger of Brahma and Antarctica, became a significant part of AB InBev in 2004.
Liam Igoe, an analyst at Goodbody Stockbrokers in Dublin, said: “Look out for more marketing, and more utilisation of the loan book facility to publicans to drive volumes.”
However, Igoe doubts whether Tennent’s lager can retain its stranglehold of the Scottish lager market.“If you were a betting man, would you say in five years’ time that the share would be higher or lower than 55%? It’s a very high share to try to maintain,” he said.
Analysts said it is unlikely that C&C will push Tennent’s volumes in the southern Irish market. This is because, as part of the deal, C&C agreed to focus on boosting the sales of Stella Artois and Beck’s in the Republic over the next 20 years.
Dunsmore played down talk of plans to transform Tennent’s lager into a global beer brand. He said that there would be opportunities to sell more of it internationally but he had “no idea” which markets would be entered first.
C&C’s primary interest in acquiring Tennent’s lies in utilising the lager’s powerful distribution network to consolidate its grip on the Scottish cider market. Scotland was the first part of the UK in which C&C launched its Magners brand in 2003.
C&C first entered talks with Inbev in January but at that stage the only assets on the table were some distribution rights to Inbev beers. In June, Inbev expanded the brief, throwing in the Wellpark brewery in Glasgow’s east end, the Tennent’s lager brand and the Scottish distribution rights to the portfolio.
“It was then that they went across Ireland and Scotland and set up an auction process,” said Stephen Glancey, C&C’s chief operating officer.
Given the £5m to £10m of synergy savings that C&C expects to achieve from the deal, there are already fears of job losses among the employees at the Wellpark brewery. Dunsmore would not comment on how many of the 300 Tennent’s jobs will be retained.
But Tony McGrath, managing director of Saltire Taverns, said substantial job losses at Wellpark are unlikely. “My understanding is the brewery is already a lean machine,” he said. He believes job losses in the merged sales team are a more likely outcome. “Knowing Dunsmore and Glancey, I suspect they’ll be focused on finding cost savings on the procurement and production side of the business.”
Igoe believes that C&C Group intends to bottle Magners for the Scottish market at the Wellpark brewery site and bottle Tennent’s lager for the Northern Irish market at C&C’s production site in Clonmel, Tipperary. “Those would be obvious cost-saving moves,” he said. He added that the deal is “being viewed very positively” by investors.
A widespread view in the brewing trade is that Dunsmore’s longer-term plan is to fatten up the Dublin-listed C&C for a sale to one of the global brewing giants, probably either SAB Miller or Molson Coors, once economic recovery is assured.
That way, the management team can be assured of the private equity-style returns, the promise of which was used to lure them across to Dublin last November.
This article, bylined Ian Fraser and Mark Paul, was published in The Sunday Times on 30 August 2009