Young & Co's Brewery Regulatory News (YNGA)

23 May 2006 07:03

Young & Co's Brewery PLC23 May 2006 23 May 2006 Young & Co.'s Brewery, P.L.C. Conclusion of review and brewing merger with Charles Wells Ltd. The Board of Young & Co.'s Brewery, P.L.C. (the "Company" or "Young's")announces that it has concluded its review of the options for the Ram Brewerysite and future brewing alternatives. The outcome of this review is: - the merger of Young's brewing, beer brands and wholesale operations with the brewing assets, including the freehold site of the Eagle Brewery, beer brands and wholesale operations of Charles Wells Ltd. ("Charles Wells") to form a new brewing business to be called Wells & Young's Brewing Company Ltd.( "Wells & Young's"); - following an additional subscription for shares in Wells & Young's by Young's at a cost of £10m, the proceeds of which will be used to repay a £10m loan to Charles Wells, Young's will hold a 40% stake in Wells & Young's, with the remaining 60% being held by Charles Wells; and - a proposed sale of the 5.5 acre Ram Brewery site and the nearby Buckhold Road offices in Wandsworth, South West London (the "Wandsworth sites"). The merger will create a major new force in UK brewing, operating from a modernand efficient brewery in Bedford, with a growing portfolio of speciality caskales and lagers and sufficient scale to compete at a national level. Key brands will include Wells Bombardier English Premium Bitter, Young's Bitter,Wells Eagle IPA, Young's Special, Waggledance, Kestrel Lager, Kirin Ichibanlager and Red Stripe Lager. Wells & Young's will also be the sole UK distributorof Corona Extra, the world's fourth largest beer brand. The resolution of Young's future brewing operations should facilitate theBoard's ability to finalise a sale of the Wandsworth sites. The Board is inadvanced discussions with respect to the disposal of the Wandsworth sites,however, there is no certainty that these current discussions will result in atransaction. A further announcement on this will be made in due course. Commenting on today's announcement, Young's Chief Executive, Stephen Goodyearsaid: "We are pleased to be able to announce the resolution of our brewing review andbring to an end the uncertainty that has surrounded our business for the pasttwo years. The creation of Wells & Young's brings together two complementarybrewing businesses with unrivalled brewing heritage. Having resolved our brewingoptions, we can concentrate on completing the sale of the Wandsworth sites,which would unlock substantial capital to continue to build Young's high qualitypub estate and enhance shareholder value. "Young's will continue to be a vertically integrated business with a substantialinterest in a modern and efficient brewery. At the same time, this deal willenable us to make a step change in the financial performance of the Company. "Importantly, Young's beers will continue to be available in all Young's pubsand to all Young's customers. We believe this is the best outcome for theCompany, for customers, for employees and for shareholders." Paul Wells, Managing Director of Charles Wells added: "We are delighted to be teaming up with such a prestigious and historic businessas Young's. The merger of our respective brewing interests creates a significantnew force in UK brewing, with strong and growing cask ale brands, operating outof one of the UK's most modern breweries. We look forward to a long andprofitable partnership between the two companies." John Young, Chairman of Young's concluded: "The decision to sell the Ram Brewery site in our 175th year was taken with somereluctance, for mainly nostalgic reasons, but as I promised when we firstannounced that we were launching the brewing review in 2003, my head has ruledmy heart. I thoroughly support the decision to sell the sites and the merger ofour brewing interests with Charles Wells, which takes Young's forward into thenext stage in its history." Enquiries: Young'sStephen Goodyear Today: 0207 357 9477Peter Whitehead Thereafter: 0208 875 7000 JPMorgan Cazenove 0207 588 2828Roger LambertJames Mitford Hogarth PartnershipJames Longfield 0207 357 9477 An analyst meeting has been arranged for 11:30 today. Please contact HogarthPartnership for details Photographs are available from Hogarth Partnerhsip JPMorgan Cazenove Limited, which is authorised by the Financial ServicesAuthority, is acting exclusively for Young's and no-one else in connection withthe transaction and will not be responsible to anyone other than Young's forproviding the protections offered to clients of JPMorgan Cazenove Limited or forproviding advice in relation to the transaction. Young & Co.'s Brewery, P.L.C. Conclusion of review andbrewing merger with Charles Wells Ltd. The Board of Young & Co.'s Brewery, P.L.C (the "Company" or "Young's") announcesthat it has concluded its review of the options for the Ram Brewery site andfuture brewing alternatives, originally announced in November 2003. The outcome of this review is: - the merger of Young's brewing, beer brands and wholesale operations with the brewing assets, including the freehold site of the Eagle Brewery, beer brands and wholesale operations of Charles Wells Ltd. ("Charles Wells") to form a new brewing business to be called Wells & Young's Brewing Company Ltd. ("Wells & Young's")(the "Transaction"); - following an additional subscription for shares in Wells & Young's by Young's at a cost of £10m, the proceeds of which will be used to repay a £10m loan to Charles Wells, Young's will hold a 40% stake in Wells & Young's, with the remaining 60% being held by Charles Wells; and - a proposed sale of the 5.5 acre Ram Brewery site and the nearby Buckhold Road offices in Wandsworth, South West London (the "Wandsworth sites"). The resolution of Young's future brewing operations should facilitate theBoard's ability to finalise a sale of the Wandsworth sites. The Board is inadvanced discussions with respect to the disposal of the Wandsworth sites,however, there is no certainty that these current discussions will result in atransaction. A further announcement on this will be made in due course. Background to the Transaction: The publication of the Mayor's Draft London Plan, in July 2003, identifiedWandsworth Town Centre as a key area for regeneration. Together withWandsworth's own Local Plan Review, this raised the possibility of the RamBrewery site being included within a zoning which would provide for alternativeland use. Following this, the Board of Young's ("the Board") announced on 27November 2003 that it had entered into discussions with Wandsworth BoroughCouncil regarding its future development plans for Wandsworth Town Centre,including the Wandsworth sites. Since these discussions, the Board has conducted a comprehensive assessment ofthe development potential of the Wandsworth sites and its future brewingoptions. Throughout this process the Board has received strong interest in thepotential of the Wandsworth sites from property developers. In addition, as aresult of the Board's review, it is clear that the age, layout and location ofthe Ram Brewery made it uneconomic to invest in improving the structure andefficiency of its operation. In considering its future brewing options, the Board has examined a wide rangeof potential alternatives, including building or acquiring an alternativebrewery, a JV or merger of its brewing operations with another brewer, contractbrewing and ceasing brewing. Reasons for the Transaction: The merger of the respective brewing, beer brands and wholesale operations ofYoung's and Charles Wells creates a major new force in brewing, operating from amodern and efficient brewery, with a growing portfolio of speciality cask alesand lagers and sufficient scale to compete at a national level. Young's will remain a vertically integrated business, with a significantinterest in the future of Wells & Young's, which ensures that Young's beers willcontinue to be brewed to the high standards expected and will be available inall Young's pubs and to all Young's customers. The Board continues to believethat the provision of Young's beer brands to its retail estate is an importantdifferentiating factor with significant consumer attraction. The Board believes that the merger of its brewing interests with Charles Wellsand the planned disposal of the Wandsworth sites will drive a step change in theCompany's financial performance. Following the Transaction, the Board's focus will be on: - completing the disposal of the Wandsworth sites; - accelerating the development of, and continuing to improve the returns on, Young's high quality retail estate; and - maximising the profitability of the enlarged brewing business in partnership with Charles Wells. Financial impact of the Transaction: In the year ended 1 April 2006, Young's brewing and wholesale business generatedan EBITDA of £3.2m and an operating profit before exceptionals of £0.9m on salesof £50.4m. The net book value of the Wandsworth sites is £11.3m as at 1 April2006 and there are £13.4m of additional assets connected to the wholesalingactivities on those sites which will be no longer needed by the Company. The cost savings for the continuing Young's retail business following thetransfer of the wholesaling operations from the Ram Brewery site, together withimproved beer purchasing terms, are expected to result in an annualised netpositive impact on profits of at least £2.5m from completion on 1 October 2006. Young's will additionally benefit from its 40% share of the profits of Wells &Young's, which is expected to be a highly efficient brewing business with astrong portfolio of speciality cask ale and lager brands. In the last financialyear, pro forma own brewed volumes of around 400,000 barrels, together withsignificant contract brewing and wholesaling volumes, give it the scale tocompete at a national level and make it one of the largest speciality brewers inthe UK. The pro forma financials of Wells & Young's will be augmented by significantsynergies from improved economies of scale - although the full impact of thesewill not be felt until the year ended September 2008. The one-off cash costs relating to the brewing merger, the Ram Brewery closureand the assumed sale of the Wandsworth sites, are forecast to be in the regionof £8.0m, the majority of which will be incurred by Young's in the currentfinancial year. The Board is confident that earnings in the year to 31 March 2008, the firstfull year, will be substantially enhanced* as a consequence of the Transaction. Wells & Young's: Wells & Young's is a new company, created from the merger of Young's brewing,beer brands and wholesale operations with the brewing assets, including thefreehold site of the Eagle Brewery, beer brands and wholesale operations ofCharles Wells. Following an additional subscription for shares in Wells & Young's by Young's ata cash cost of £10m, which will be used to repay a £10m loan to Charles Wells,Young's will hold a 40% stake in Wells & Young's, with the remaining 60% held byCharles Wells. Wells & Young's will be based at the Eagle Brewery in Bedford and will commencetrading on 1 October 2006. It will be responsible, amongst other things, forbrewing, packaging, warehousing and wholesale activities. Jim Robertson, Master Brewer of Charles Wells, will be Production Director, withKen Don, Young's Head Brewer, retained as a full-time consultant until hisretirement. It is intended that, following the completion of taste matching and productquality trials over the summer, Young's will have transferred all of its brewingand wholesale activities to the new company by 1 October 2006. Distribution andwarehousing will remain at Wandsworth until its relocation to a new satellitedepot in late 2007. All remaining Young's staff and corporate functions,including the managed houses and tenanted estate managers, will be relocated in2007 to a new head office in Wandsworth. Information on brands and brewing assets to be contributed by Young's The Young's assets to be contributed comprise its brewing activities, includingcertain specialist brewing equipment, its beer brands and wholesale operations,including Cockburn and Campbell. The core beer brands, which will be licensed inperpetuity to Wells & Young's, include Young's Bitter, Young's Special andWaggledance as well as its range of bottle conditioned ales. In the year ended 1 April 2006, Young's brewed over 167,000 barrels of beerincluding 106,000 barrels of owned beer brands, of which Young's Bitteraccounted for 46,000. Information on brands and brewing assets to be contributed by Charles Wells Charles Wells will contribute its own and licensed beer brands, together withthe freehold and assets of the Eagle Brewery. Located in Bedford, the EagleBrewery was built in 1976 and has been well maintained through significantinvestment since this date. The brewery site occupies 16 acres. Charles Wells' owned brand portfolio, which will be licensed to Wells & Young'sin perpetuity, includes its flagship premium ale brand, Wells Bombardier, whichin the year ended September 2005 was the fastest growing premium cask ale in theUK. Other brands include Wells Eagle IPA Bitter, John Bull Bitter and Kestrel lager(acquired from Scottish & Newcastle in 2005), together with a variety of otherspeciality and seasonal ales. In the financial year ended September 2005, Charles Wells brewed around 300,000barrels. In addition, Charles Wells has the UK distribution rights for Corona Extra, thefast growing Mexican lager and the world's fourth largest beer brand. This hasbeen imported under licence from its brand owner Grupo Modelo since 1996.Charles Wells also has the rights to brew and market Red Stripe Lager (thepopular Jamaican beer brand which is owned by Diageo plc) and Kirin Ichibanlager which is owned by the Kirin Brewery Company in Japan. All these licensedbrands will be transferred to the new company and are subject to renewal in theordinary course. On a historical cost basis, the brewing and brands business (including thefreehold interest of the Eagle Brewery site) had net operating assets of £15m asat 30 September 2005. These assets were not operated as a separate entity withinCharles Wells and therefore have not previously been reported on. Whiledependent on subjective assumptions, the Charles Wells directors estimate in theyear ended September 2005 that the sales and operating profit attributable tothese assets were £128m and £2m respectively. Supply Agreements Young's (which has a managed and tenanted estate of 208 pubs and inns) andCharles Wells (which has a managed and tenanted estate of 245 pubs) have bothentered into exclusive three year rolling supply agreements with Wells & Young'sfor the supply of beverages to their respective pub estates. The parties haveagreed to an initial two year period in which notice cannot be given (thereforethe first date at which the supply agreement could be terminated is October2011). The Board believes that the pricing of the supply agreement is in line withmarket rates, which for Young's is an improvement on the historic transferprices operating between the Young's retail estate and its wholseale operations. Shareholder Agreement Charles Wells and Young's will have the right to appoint 60% and 40% of theBoard of Wells & Young's respectively. Initially, the Board of Wells & Young'swill consist of Stephen Goodyear and Peter Whitehead from Young's and PaulWells, who will be Chairman, and Roger Ashworth from Charles Wells, togetherwith a strong brewing management team selected from the existing Charles Wellsbusiness led by Nigel McNally, who will be Managing Director. Both Young's and Charles Wells have vetoes over certain significant Wells &Young's matters including, inter alia, material changes to the business,material transactions or agreements and material changes in its capitalstructure. Both shareholders' holdings are subject to a two year lock up agreement. Inaddition, in the event of a change of control of either shareholder, the othershareholder will have the right, but not the obligation, to acquire the balanceof the issued share capital at a value determined by a formula. In the firstfive years, the equity value of Wells & Young's on a change of control would benot less than £75 million. Wells & Young's will be setting up a new defined benefit pension scheme foremployees transferred to the new company. This scheme will be fully funded fromthe outset by the two shareholders, in proportion to their respective employeesjoining the new company. It is intended that 80% of the profits of Wells & Young's, after pensioncontributions, will be distributed to shareholders as dividends each year. * This statement should not, however, be interpreted to mean that the Young'sconsolidated earnings per share will necessarily be greater than those for anypreceding financial period. This information is provided by RNS The company news service from the London Stock Exchange