Greene King has agreed to be acquired by Hong Kong-based group CKA in a cash deal that values it at £2.7bn (£4.6bn including debt). The move is the latest in a series of deal that has seen the UK pub industry consolidate, with Fuller’s selling its drinks business to Asahi and Ei Group (formerly Enterprise Inns) being bought out by Stonegate Pub.
CKA was founded by and is controlled by billionaire Li Ka-Shing, who controls the A.S. Watson Group. It owns several luxury properties in the UK (the Chelsea Waterfront development, Belgravia Place, and Royal Gate Kensington) and UK Power Networks, as well as significant minority stakes in UK Rail, Northumbrian Water, Wales and West Gas Networks.
CKA said its strategy is “to look for businesses with stable and resilient characteristics and strong cash flow generating capabilities. The UK pub and brewing sector shares these characteristics and we believe that this sector will continue to be an important part of British culture in the long run.”
Nick Mackenzie, Chief Executive of Greene King, said CKA shared many of his group’s “business philosophies”, adding: “They understand the strengths of our business and we welcome their commitment to working with the existing management team, evolving the strategy and investing in the business to ensure its continued long-term growth”.
Greene King added that CKA has no plans to make “material changes” to its group and management staff numbers and does not plan to “initiate any material headcount reductions within the Greene King organisation as a result of the acquisition.”
The directors of Greene King – which owns nearly 2,700 pubs, restaurants and hotels across the UK – said the terms of the deal were “fair and reasonable”. The directors are unanimously recommending that shareholders approve the deal when they get the chance to vote on it.
News of the deal sent shares in Greene King surging by more than 50%, although analysts have said the takeover is likely to lead to more pub closures. Neil Wilson, analyst at Markets.com, said the “whopping price” offered by CKA implies that the latter “sees significant value in the property portfolio”.
Wilson noted: “Greene King owns the freehold or long leasehold on 81% of its properties. The company recently carried out a revaluation of its property estate that indicated a market value of £4.5bn against the £3.5bn book value”.
NAM Implications:
- In other words, ‘sale & leaseback’ would cover the purchase price inc debt.
- Leaving the ‘steady cashflow’ in place.
- Nice one…
- Nevertheless, NAMs should anticipate some rationalisation of the estate.
- And an extra focus on financial performance…
