(Alliance News) - Marston's PLC's sale of its 40% stake in Carlsberg Marston's Brewing Co was seen as a logical outcome allowing the firm greater financial flexibility.
On Monday, the Wolverhampton-based pub chain and hotel operator announced it had offloaded its holding in the brewing joint venture to a subsidiary of Carlsberg AS for GBP206 million in cash.
Marston's will continue its partnership with Carlsberg Marston's through the long-term brand distribution agreement, which remains in place, it said.
Proceeds will be used to pay down debt. As a result, Marston's is aiming to achieve its medium-term target of less than GBP1 billion of net debt in a "significantly accelerated" time frame.
The company called the deal an "attractive result" for shareholders with the outcome earnings accretive.
Chief Executive Justin Platt said: "This deal further strengthens our balance sheet, significantly reducing our debt by over GBP200 million."
Marston's expects interest expense to reduce by around GBP18 million annually versus the board's current expectations, as a result of the sale.
Shore Capital analyst Greg Johnson said although the timing was "unexpected", strategically the outcome was the "logical conclusion, both from a Carlsberg UK and Marston's perspective".
For Marston's, it leaves "a cleaner business, with greater visibility on earnings and increased financial flexibility", Johnson remarked.
Johnson estimated the sale will reduce net debt to near GBP900 million from his forecast, pre-disposal, of GBP1.12 billion, comfortably below the company's less than GBP1 billion medium term target.
Although likely to be modestly dilutive to free cash flow, Johnson sees the group being cash accretive on an underlying basis going forward, further reducing leverage.
This gives the group increased flexibility to reinstate the dividend, for buybacks and/or accelerated investment, Johnson thinks.
The ShoreCap analyst expects the capital allocation framework to be set out at a capital markets say in the autumn.
Johnson reiterated a 'buy' rating on Marston's.
Shares in the company soared 17% to 35.80 pence each in London on Monday morning.
By Jeremy Cutler, Alliance News reporter
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