8th July 2024
Marston’s Plc to dispose of 40% stake in Brewing JV to become a focused pub business
Marston’s PLC (“Marston’s“[1]) today announces the sale of its remaining non-core brewing assets to create a business entirely focused on pubs, with a binding agreement to sell the whole of its 40% interest in Carlsberg Marston’s Limited (“CMBC“) to a subsidiary of Carlsberg A/S (“Carlsberg“) (the “Transaction“) for £206 million in cash.
· Value-creating sale of interest in CMBC to Carlsberg for £206 million in cash
· Establishes a purely focused pub business with a strong position in the UK market and significant opportunities for further growth
· Delivers on stated de-leverage strategy creating a stronger balance sheet and a step change in financial flexibility
· Marston’s will continue its strong partnership with CMBC through the long-term brand distribution agreement which remains in place
· Attractive valuation, representing an enterprise value[2] multiple of 14.5 times EBITDA[3] and 24.3 times EBIT[4] for the 12-month period ended 31 December 2023
· Net proceeds[5] used for significant debt paydown, achieving medium-term target of <£1 billion of net debt (excluding IFRS 16 lease liabilities) in a significantly accelerated time frame. March 2024 pro-forma adjusted net debt of c.£959 million[6]
· The Board of Directors believe that the value to be achieved by the proposed Transaction represents an attractive result for Marston’s shareholders with the Marston’s Group’s interest expense to reduce by c.£18 million annually versus the Board’s expectations and the overall outcome earnings accretive
Justin Platt, Chief Executive Officer, commented:
“Today’s announcement represents a significant milestone for Marston’s as we realise our stake in CMBC. In my first six months with the business, it has become very clear to me that our core capability and key opportunity to unlock value for shareholders is in driving a focused and successful pub business.
This deal further strengthens our balance sheet, significantly reducing our debt by over £200 million. In addition, CMBC remain valued strategic partners and we continue to benefit from our ongoing long-term brand distribution agreement with them. Crucially, it allows us to become a pure play hospitality business and focus on what we do best – namely, giving our guests amazing pub experiences. I look forward to delivering on the opportunities a focused pub business will provide to ensure we maximise value for our shareholders.”
Focused pub business
The full exit from CMBC will create a pure play hospitality business focused on pubs whilst retaining the benefits of a long-term brand distribution agreement with CMBC as a key supplier and strategic partner.
Pubs are at the heart of UK socialising, the UK pub market offers significant opportunities to capitalise on and drive value for shareholders. Marston’s pub business is built on strong fundamentals; a suburban-dominated, predominantly freehold estate of c.1,370 pubs combined with a balance of managed and partnership (‘franchised’), tenanted and leased pubs allows the Group to optimise its consumer offering and deliver a highly cash generative operating model.
This Transaction allows Marston’s to further build on those strong fundamentals and accelerate progress in driving the success of the pub business and demonstrates management’s preparedness to take decisive steps that will drive shareholder value. Further detail on Marston’s priorities and focus will be outlined at an investor day in the Autumn.
Sale of CMBC transaction summary
In 2020, CMBC was formed to combine the strengths of both Marston’s and Carlsberg, leveraging complementary drink portfolios and an extensive distribution network. Over the last three years, this partnership has played a significant role in enhancing CMBC’s customer offering.
Whilst Marston’s believes that CMBC is well-positioned for future success as a market leader under Carlsberg’s sole ownership, they have been challenged by a number of unforeseen macro and socio-economic factors, including Covid-19, higher operating costs and inflation. Furthermore, as announced on 2 July 2024, the licensed production and distribution agreement for San Miguel with CMBC in the UK will not be renewed beyond 31 December 2024.
The attractive upfront cash payment reflects the breadth of the CMBC brand portfolio. The offer of £206 million is not subject to any value adjustment mechanism and represents a multiple of 14.5 times EBITDA3 and 24.3 times EBIT4 for the 12-month period ended 31 December 2023. The cash proceeds will provide immediate financial benefits to Marston’s through material debt paydown and ensure that Marston’s can capitalise fully on the opportunities within its core pub business.
Furthermore, the Transaction removes the distraction of non-core assets over which Marston’s has no day-to-day operational control and enables further simplification. The Transaction also removes the corresponding volatility and uncertainty within Marston’s earnings profile.
When taking into account the initial formation of CMBC, whereby Marston’s received proceeds of £267 million[7] and contributed its brewing assets at a valuation representing a multiple of 12.9[8] times EBITDA for the 12-month period ended 31 December 2019, Marston’s will have exited its brewing operations for a total consideration of £473 million. Additionally, Marston’s has received an incremental £54.8 million[9] of dividends from CMBC since 2020. Under the Transaction, no further dividend would be payable to Marston’s.
CMBC will continue to supply Marston’s through the long-term brand distribution agreement (the “SDA“) that was entered into upon formation of CMBC in 2020. The terms of the SDA have been updated without material change, to reflect the end of the joint venture between Marston’s and Carlsberg and termination of the shareholders’ agreement relating to CMBC (the “SHA“). Marston’s looks forward to continuing its strong partnership with CMBC as a customer under the SDA.
The Transaction constitutes a Class 1 transaction for Marston’s under the current UK Listing Rules and is, therefore, as at the date of this announcement, conditional on Marston’s shareholders passing a resolution approving the Transaction (the “Shareholder Approval Condition“). The Transaction is not subject to any other conditions. The Shareholder Approval Condition can be waived by Marston’s (at its discretion) to take account of the fact that the UK Listing Rules are expected to change in the summer of 2024 in a manner that would mean the Shareholder Approval Condition is no longer required for Class 1 transactions. If the UK Listing Rules are amended within an appropriately short time frame, the directors propose to waive the Shareholder Approval Condition. If the UK Listing Rules are not amended within an appropriately short time frame, the directors would seek shareholder approval for the Transaction. A further announcement will be made if and when appropriate.
Completion is targeted before the end of September 2024 (the long-stop date for completion of the Transaction is 15 December 2024). In connection with Carlsberg’s proposed acquisition of Britvic plc, as referenced in Carlsberg’s announcement of its firm intention to make an offer for Britvic plc under Rule 2.7 of the City Code on Takeovers and Mergers separately released today (the “Carlsberg Transaction“), Marston’s has waived certain non-compete restrictions under the SHA for the purposes of the Carlsberg Transaction only for a limited period of time (the “Waiver“). The Waiver is not conditional on completion of the Transaction, it is restricted in time, and it is limited to the Carlsberg Transaction only.
The Board of Marston’s has unanimously approved the Transaction and believes it is in the best interest of all of its shareholders.
Key financial information of CMBC
To assist with the assessment of the valuation of CMBC and pro-forma impact on Marston’s, below is a summary of the key financials.
| Marston’s historical financials | |||
| £ million unless otherwise stated | 12m to 1-Oct-22 | 12m to 30-Sep-23 | 6m to 30-Mar-24 |
| Income from CMBC | 3.3 | 9.9 | (0.6)[10] |
| Dividend from CMBC | 19.4 | 21.6 | 13.8 |
| Book value of CMBC | 260.3 | 250.9 | 220.7 |
Use of proceeds and financials effects of the Transaction
Marston’s will use the net proceeds to de-leverage, including paying down the private placement and banking facilities, following which Marston’s expects the Marston’s Group’s overall interest expense to reduce by c.£18 million annually versus the Board’s current expectations.
The Group’s £300 million bank facilities were drawn down by £232 million as at March 2024 and the private placement is in the sum of £40 million. On a pro-forma basis, including the net proceeds from the Transaction of c.£202 million (after estimated fees and restructuring costs of c.£4 million), adjusted net debt as at March 2024 would have been c.£959 million6. We do not expect any material tax to be payable by Marston’s.
Consequently, Marston’s has achieved its 2026 net debt (excluding IFRS 16 lease liabilities) target of <£1 billion in a significantly accelerated timeframe. Marston’s will continue to be focused on debt reduction and be disciplined in the use of cash to deliver superior returns through focused capital investment in the estate.
Marston’s expects to put financing in place that is better suited to the new level of leverage in due course and will update as and when appropriate. In addition, Marston’s will provide an update to the existing capital allocation framework at an investor day in the Autumn.
The Transaction is expected to be accretive on adjusted earnings per share when taking into account the interest cost savings. The Board believes that the Transaction will support the Group in driving improved performance through increased financial flexibility and fully aligns and supports the strategic objective of a focused pub company.
The pro-forma impact on net assets for Marston’s is a reduction of c.£19 million, given book value of CMBC of £220.7 million at HY 2024 and net proceeds from the Transaction of c.£202 million after estimated fees and restructuring costs.
Endnotes:
[1] References to the “Group” or the “Marston’s Group” mean Marston’s PLC (or the “Company“), its subsidiaries, as defined in the Companies Act 2006, and its subsidiary undertakings from time to time.
[2] Enterprise value calculated based on cash consideration of £206 million plus Marston’s 40% share of CMBC’s unaudited pre-IFRS 16 net debt as of 31 December 2023 of £72.5 million, as per CMBC’s internal financial accounting records as reported to Marston’s (extracted without material adjustment).
[3] Marston’s 40% share of CMBC’s unaudited pre-IFRS 16 underlying EBITDA for the 12 months ending 31 December 2023 of £40.5 million, calculated from CMBC’s internal financial accounting records as reported to Marston’s (extracted without material adjustment).
[4] Marston’s 40% share of CMBC’s unaudited pre-IFRS 16 underlying EBIT for the 12 months ending 31 December 2023 of £24.2 million, calculated from CMBC’s internal financial accounting records as reported to Marston’s (extracted without material adjustment).
[5] Net proceeds of c.£202 million after estimated fees and restructuring costs of c.£4 million (excludes costs of Class 1 circular).
[6] Net debt (excluding IFRS 16 leases) of £1,160.9 million extracted from Marston’s published unaudited HY 2024 interim accounts, without material adjustments, minus net proceeds of c.£202 million.
[7] Proceeds include the upfront payment of £239 million (£273 million less the £34 million contingent payment) as per the announcement on 22 May 2020 and the contingent payment of £28 million received as per Marston’s published audited 2022 annual report and accounts.
[8] As per publicly announced valuation of £580 million, net of the £6 million lower contingent payment which is the difference between the £34 million announced contingent payment on 22 May 2020 and the £28 million received as per Marston’s published audited 2022 annual report and accounts, and EBITDA of £44.6 million on 22 May 2020.
[9] Includes dividend received from CMBC as disclosed in Marston’s published audited 2023 annual report and accounts. As well as the dividend received from CMBC as disclosed in Marston’s published unaudited HY 2024 interim results.
[10] Underlying income of (£0.6 million) for 6 months to 30 March 2024. Statutory income was (£16.6 million) for the period.