Greene King shares ramped up after Hong Kong's CKA agrees on purchase

Thursday, 22nd August 2019 07:13 - by Shant

Share in Greene King spiked 50% at the start of the week on news that the Hong Kong firm CKA, founded by Li Ka-Shing, has agreed to buy the Suffolk based brewery.  This follows a developing trend of consolidation, where earlier in the year we saw Fuller's selling out to Japan's biggest brewer Asahi.  From just under £5.70, share prices rallied to highs a little over £8.60 before leveling off.  

Greene King chief executive Nick MacKenzie was clearly in favour of the deal, along with a number of directors who believed the deal to be 'fair and reasonable', while in the belief that CKA 'shares' the company's philosophies and will commit to long term growth.   In a statement from Greene King, CKA is not expected to make any material change to staffing levels as a result of the acquisition, but it seems not all analysts are keen to embrace a seamless transfer of ownership.  

While the industry is undergoing some tough times are present, with pubs in the UK suffering from lower numbers, company valuations - and in this case, Greene King - can offer some good opportunities to in terms of gaining prime real estate.  Pub closures have seen a rising trend, and this may well be part of the plan in acquiring Greene King, as a way of increasing the UK property portfolio for the Hong Kong based company, who's business spectrum includes retail and telecoms firms.  

While this may sound a little cynical, it is worth noting that Greene King's estate value was estimated to be £1bln over its book value of $3.6bln, so based on the numbers, this could be a shrewd acquisition for shareholders on both sides, but not necessarily for traditional customers.  

During the Brexit debates earlier in the year, parliament managed to squeeze in a debate on how best to try and preserve the village pub(s), which tend to serve as prominent community focal points in UK everyday life.  While there may be concessions on business rates and alcohol duties further down the line, it may not be enough to stem the tide in the current climate, which sees alcohol spending and consumption migrating towards supermarkets and the larger off-licenses.  

Consequently, the sharp rally in stock price may turn out to be a hollow one, though perhaps not on the short term horizon.  Even so, the terms of the deal will be recommended to shareholders for a final vote.  Given the devaluation in Sterling over the past few years, overseas investors have afforded the opportunity to offer a strong purchase price, so it seems somewhat inevitable that the vote will go in favour of CKA and the eventual sale.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.