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Even though £273m is a significant reduction in Marstons debt it still leaves over £1billion owed and due for settlement over short,medium and long term. Debt management will depend on income generation, which will not be great in the next couple of years, and asset liquidation, which could become a problem not only because of the uncertain/unknown economic landscape, but the conditions within the agreement with Carlsberg. Under the agreement Marston will be in breach should the company dispose of more than 50% of it’s retail estate.
It is highly likely, within 5 years, Carlsberg will have full control on CMBC. JV’s with Carlsberg do appear, usually, to be not long lasting.
Barchid,
My view was re-inforced when considering the failed sale of Pitcher and Piano last summer, against the background to reduce the debt pile. The deal with Admiral then completed, at a considerable discount, in November. RF then stated, in the annual report, the intention to reduce debt by a further £200K by 2023. I do not believe RF is a strong negotiator, the experience with the P & P deal influenced his desire to keep debt under control . The Admiral deal was done at a big discount.
Intent to keep the ball-rolling, and we do not know who approached who ( Carlsberg or Marstons) negotiations proceeded towards a JV. End of February/ely March it became clear a major obstacle (Covid) was on the horizon and there was no telling how it would play out ( still does’nt). This engaged minds, Marstons especially, and the deal was struck. Carlsberg do have a formidable Executive team in the UK. Re-inforced in January by the appointment of a Vice-President of Production, a man who has considerable experience.
It is conjecture, but reasonable to assume the effects of the pandemic weighed heavily on RF’s mind, who could see the debt reduction target was in jeopardy and therefore took Carlsberg’s offer, which to be fair puts Marstons in a far better place.
We want to see a good balance sheet and eventual return to profits and dividend, but do not be under any illusion. The current year’s balance sheet is going to look awful and next year given recovery, integration of the businesses into CMBC will not come without initial costs, which will ultimately achieve savings and better profitabilty. Carlsberg have 11% of the Uk Beer market yet have 1 major brewery in Northampton and a much smaller Craft Brewery in London. By contrast Marstons have 6 breweries throughout the Midlands,Eastern Counties and Southern England. The New group will have 8 breweries in total. It is conceivable this will reduce by half, could even see only 3 breweries eventually. It would make economic sense to displace Bedford and Wychwood and one of the New Forest properties. The question then remains is Wolverhampton closed and production transferred to Burton where a modern plant exists and further space for enlargement. These could be painful decisions, but unlikely the Carlsberg team will shy away from such significant cost savings. A fly in the ointment could be caveats regarding the retention of the Wells Brewery in Bedford, am not sure how rigid and legally binding the transfer agreement was when Marston acquired in 2017. No doubt the power of Carlsberg would overcome.
Even though £273m is a significant reduction in Marstons debt it still leaves over £1billion owed and due for settlement over short,medium and long term. Debt management will depend on income generation, which will not be great in the next couple of years, and asset liquidation, which could become a problem not only because of the uncertain/unknown economic landscape, but the con
fairdealer
Not only do I believe you are correct in the way the bid was negotiated but I wonder if the yoke of owning a disparate estate of pubs in lockdown, some of which were sold off last year at a discount to valuation, allowed Carlsberg to insist "brewery only, no pubs wanted" and MARS had to take it or leave it.
To my mind I think that people who are excited about what the effect of opening these pubs have no idea how awful some of them are !
Youngs estate is a very different quality to Mars, sure there are some decent MARS ones, sure a pub is a subjective matter but are they/were they mainly heaving with people pre lockdown ?
Not looking at the last few years accounts they weren't.
I think the deal was not greatly, if at all, altered by covid and it was a deal thought of as a good one for both parties going forward. I don't know what synergies the CMBC will come up with but you can bet Carlsberg will be pretty good at running things well where they can. Probably good software and staffing input and fleet controls not to mention maximising the retail outlet that both already have with fresh beverage sales by cross selling their existing outlets. Possibility of the continental Carlberg business taking former Marston stable brewer's output to widen sales to the continent . I am not a pub goer myself but hope Marston's do own some quality locations and get down to business after lockdown is lifted, there is probably a lot that can be done by a building refurbishment division of the business. Wetherspoons have it well developed.
Where are you putting your money for a post lockdown profit?
doze incorrect the deal was struck in May, negotiations commenced pre-covid. The issues/pressures already identified no doubt hastened agreement.
What brewing synergies that have not been mentioned, do you anticipate will materialise?
barchild-the deal was struck pre covid as a good way forward. The old set up had directors managing pubs and brewing. I expect the brewing to gain synergies and the freeholds a new management who can concentrate on service to the customer like Wetherspoons does.
fairdealer
You have certainly summed the position up nicely here, one other point to reinforce your thinking, if Mars were not in a horrible position post covid with no pubs open & only selling to the off trade/supermarkets on razor thin margins compared to pub sales, why would RF & the board accept an offer just for the brewery ?
To me it indicates that they knew they were drinking in the last chance saloon, they had no choice or a bad choice, obviously they had to accept the bad choice.
To be clear Marstons will have a share in a NEW brewing Company, CMBC, and will receive £273m for what?
What does that payment from Carlsberg represent? Can those who believe MARS will still have control over brewing please explain? Have yet to see a Junior Partner in a JV dictate to the Major holder......Carlsberg WILL call the shots.
Think of this, for a few more Million Carlsberg could take Marstons over but maybe find the Pub and Motel Estate unattractive.
Even though Whitbread, generally regarded as a pioneer in competitive Pub/Motels are raising, through a Rights issue, £1billion. This follows the windfall of £2bilion from Pepsi, 2 years ago,. WTB's balance sheet has no where near proportionate debt level of Marstons.
And let’s not forget, now Marston’s are largely out of brewing, being a part of “the largest brewing company in the U.K” now actually means very little, unfortunately, there are no major breweries left...
Yes, a junior partner, far from the 100% owner, and a major strategic shift.
CMBC will obviously have its own separate management.
HC
you are all over the place.
Lets be clear. Marstons will still be involved in brewing, as the 40% owner of the largest brewing operation in the UK , so your ''now that Marston’s have got out of brewing'' is nonsense.
Doze, Yes you are right, but it’s a big cultural shift, they are now “junior” partners in the brewing side. My point is they now have a tenanted and leased business, which for them is now a side show ( and ready for sell off), and a managed business which though largely freehold (as you say) is also mortgaged to the hilt...and they are not the best managed operators! The brewing side were the jewels, what is left is lacklustre...but they are not the worst. Now they are a pub property company, look at Ei, GK, Punch, if you want see what’s next...
Hoolicat; Marston's are not out of brewing they are trying out a better managing system out of which they can wriggle if it goes wrong. I think as a mainly freehold business Marston's will come out of lockdown much better than businesses that have leases to pay.
Also FD I have seen over the last year that you have been a genuine contributor, unlike some guesswork contributors who think, for example, that dividends will be back up next week! Debt will continue to be the critical factor here, despite the cash back from the brewery sale...and that still has to get voted in and get though MMC, which is likely but not a given.
The analogy is that Marston’s have successfully got into a lifeboat...and short term it is a great opportunity, (but then so are MAB, JDW, WTB over then next 3 weeks) but there are better long term pub ships to sale on now that Marston’s have got out of brewing. I have invested in MARS for a long while and I have strong connections with this company, the move out of brewing is a seismic shift which still needs evaluating over the coming months!
Hoolicat glad you said that not me as I would be considered negative. Have tried to point readers in the right direction.However good the deal with Carlsberg, and there are short term gains, ultimately once the Major shareholder has brought in efficiencies, which may take 2 years, the autonomy of the unique and individual breweries will be centralised. This in itself will achieve significant savings, human resource reductions, distributions savings etc
The creation of CMBS as a private company leads me to think, it will be floated at the appropriate time.
Traditionally Marston’s have been a brewer with pubs, it has had three key revenues, it’s breweries/free trade, managed pub income and tenanted/lease pubs with rent and tied margin. It has been a source of pride in that it has acquired and kept intact several breweries, such as Ringwood and Jennings, But this income stream has only been 20% or so of income. Marston’s effectively selling it’s brewery is a fundamental change of its traditional character, though not necessarily a huge profit impact. So the sale represents a huge shift in culture... do not under estimate how much of a Culture shock this will be to employees and it represents a “nothing is off the table” change going forwards. So what is left is tenanted and leased pubs, about £30 million a year in profit...currently under severe pressure, with an average of 11% ROC on NBV of property...(pre-Covid) and could well be on the table for a sale to Admiral or New River. Them Marston’s would be down to just its Managed house/New build Managed house division. In this market it is woefully out matched...either in the value cheap dining market where there are far better offers, or the quality beer/dining market where it again is it out-gunned by independent offers. In the short term Marston’s is a great opportunity for a quick 70p to £1 run as pubs open, but medium term the company is going to get broken apart...the brewery sale represents the death bell within the next year..IMO and do your own research!