If Carlsberg did Mergers: £780m merger with Marston’s

June 22, 2020

2 min read

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What's going on here?

Pub group Marston’s and Carlsberg UK have set up a joint venture to share their brewing operations and costs.

What does this mean?

Carlsberg UK and Marston’s brewing arm have announced their proposal to merge. Marston’s boasts an inventory of around 1,350 pubs across the UK and operates six brewery sites. The new joint brewing and distribution venture “Carlsberg Marston’s Brewing Company” will see Marston’s dispose of its brewing operations, which make up 20% of its business.  Carlsberg, which makes San Miguel and Kronenbourg, will be the majority stakeholder with 60% equityMarston’s, which counts Hobgoblin and 61 Deep brands under its umbrella, will have a 40% stake and receive a cash payment of £273m.  

The merger will expand Carlsberg’s beer portfolio as Marston’s brings ales and premium beers to Carlsberg’s strong portfolio of lagers.  Marston’s announced it had been given a further £70m loan from the bank to help meet its obligations through the pandemic to the end of the year, as it has been hit especially hard by its forced closures since late March.  With pubs reopening in early July, the extent to which the hospitality sector will be able to recover, with the new measures in place, remains uncertain.

What's the big picture effect?

The new venture is expected to achieve annual cost savings of £24m by its third year.  A long-term supply and distribution agreement included in the terms of the deal will give Carlsberg access to Marston’s extensive pub estate.  Many smaller independent breweries are concerned they could be squeezed out of the market, especially if M&As surge in the hospitality industry, and have sought assurances from the new brewing company that they will continue to offer a diverse product range in their pubs.  As a result, the deal remains subject to approval by the CMA (Competition and Markets Authority) and Marston’s shareholders.  Slaughter and May’s competition and real estate departments acted for Marston’s and Norton Rose Fulbright advised Carlsberg. 

For Marston’s, which can now focus solely on its pub operations and reducing its debt load, business will look very different.  Kate Griffiths, Conservative MP for Burton in Derbyshire, where Marston’s largest brewery is based, will be discussing the details of the merger to see what it will mean in terms of job protection for the local community and its 14,000 employees nationwide.  

Initial merger discussions began in November last year, and the parties agreed terms in February, before the pandemic caused the closure of the company’s entire estate and an 80% downturn in business.  Marston’s CEO commented the deal was a “massive vote of confidence for the UK’s pub and brewing sectors for the longer-term… Carlsberg in Denmark is putting £300m of capital into the UK”.  As a result of the announcement, Marston’s saw shares surge almost 90 per cent on the FTSE 250.  Given its debt and the timing of the pandemic, equity analysts have labelled it a “game changer” for Marston’s. 

Report written by Sophie Belcher

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