Engine Capital Sends Letter to C&C Group’s Board of Directors Calling for a Review of Strategic Alternatives
Notes that C&C’s Current Trading Valuation of ~7x Normalized EBITDA Is Disconnected from the Strategic Value of Its Assets and Reflects a Steep Discount to Transaction Multiples in the Industry
Believes Shareholders Could Conservatively Receive Between
239.00 and
***
Bulmers House,
Attention: Board of Directors (the “Board”)
Dear Members of the Board:
We invested in C&C more than four years ago due to the Company’s high-quality portfolio of brands, leading distribution position in the
Given these dynamics, we believe the best path forward is for the Board to explore strategic alternatives for the
STRUCTURAL AND SELF-INFLICTED ISSUES HAVE CONTRIBUTED TO C&C’S UNDERPERFORMANCE AND VALUATION DISCOUNT
C&C has been a perennial underperformer and has failed to create shareholder value over any relevant measurable period, as shown below.4
Total shareholder returns over time | |||||||||||||
Total Shareholder
|
Total Shareholder
|
Total Shareholder
|
Total Shareholder
|
Total Shareholder
|
|||||||||
|
5.3% |
13.3% |
14.1% |
(1.7%) |
17.3% |
||||||||
Peer Group Average |
14.6% |
25.3% |
18.8% |
(1.6%) |
24.1% |
||||||||
|
4.2% |
26.1% |
(14.4%) |
(30.5%) |
(51.7%) |
||||||||
|
(1.1%) |
12.8% |
(28.6%) |
(28.8%) |
(69.0%) |
||||||||
|
(10.4%) |
0.8% |
(33.3%) |
(29.0%) |
(75.8%) |
We believe this underperformance and the Company’s discounted valuation are the result of structural and self-inflicted problems.
The structural issues relate to C&C’s small size and the complexity of its portfolio. The Company is subscale with a small market capitalization and limited daily trading liquidity. At the same time, the business is complex with disparate assets with different financial characteristics across different geographies. As a result, the Company has no pure play peers of similar size or geographic composition, making it more difficult for public market investors to evaluate, diligence, and value it. Given these dynamics, we believe C&C makes for a poor public company and is unlikely to ever be properly valued in its current form.
The Company has also suffered from a host of self-inflicted issues over the last few years, including succession missteps, strategic mistakes, execution blunders, and an inability to return to its higher historical earnings profile. The Company has consistently disappointed operationally and financially, failed to grow its Magners brand in
C&C’S BOARD HAS AN OPPORTUNITY TO MAXIMIZE SHAREHOLDER VALUE THROUGH A STRATEGIC REVIEW AIMED AT A SALE
Given the Company’s underperformance, poor track record of execution, discounted valuation, and CEO succession risks, we believe it is time for the Board to consider a different path forward and explore strategic alternatives for the Company. In our view, a sale could deliver returns far superior to the standalone value of the Company, especially considering the time value of money and the execution risks of attempting to reverse self-inflicted issues. We urge the Board to take the following steps with a view toward maximizing value for long-suffering shareholders:
1. Strengthen the Board with Necessary Financial and M&A Expertise
As C&C considers whether to explore strategic alternatives, we believe it is critical to have individuals in the boardroom who possess the relevant financial skillsets and a shareholder mindset to assist the Company. As such, we believe the Board should add new directors with strong financial backgrounds – particularly in M&A, capital markets, and capital allocation – and add independent shareholder representation.
2. Initiate a Strategic Review Process to Monetize the Company
We believe C&C makes for an attractive acquisition target given the quality of its assets. C&C owns a portfolio of strong local brands including Tennent’s, the leading Scottish beer brand (~30% market share);
We suspect the optimal strategic acquiror of C&C’s assets is a scaled company with a global, established brand that could optimize marketing expenses, benefit from
Finally, we believe the appointment of
3. Incentivize Management to Ensure the Best Possible Outcome
As the Board begins to evaluate the Company’s strategic alternatives and what C&C could be worth in the private market, it is important to appropriately motivate executives critical to a potential transaction. We encourage the Compensation Committee to consider a transaction bonus pool for critical employees and the potential acceleration of unvested securities, as well as potential change of control payments if an executive is let go within 12 months following a transaction. We believe instituting this type of compensation framework will go a long way toward calming and motivating the relevant employees.
In conclusion, we firmly believe that C&C is at a crossroads today. The Board has a timely opportunity to maximize value over the coming months under the leadership of
Sincerely,
Managing Member
Appendix A: Relevant Precedent Transactions | ||||||
Date | Target | Acquirer | EV/LTM EBITDA | |||
Dec-22 |
|
Carlsberg | 12.4x | |||
Jul-22 | Guiness Cameroon |
|
15.6x | |||
May-20 | Marston's |
Carlsberg | 13.0x | |||
Aug-19 |
|
CK Noble | 9.5x | |||
Jan-19 | Fuller, Smith & Turner P.L.C. Beer Business | Asahi Group Holdings | 23.6x | |||
Apr-17 |
|
|
14.3x | |||
Dec-16 | Anheuser-Busch InBev SA/NV (CEE Brands) | Asahi Group Holdings | 14.8x | |||
May-16 |
|
|
9.0x | |||
Feb-16 | Peroni, |
Asahi Group Holdings | 21.6x | |||
Nov-15 |
|
Molson Coors Brewing Company | 11.5x | |||
Nov-15 |
|
Anheuser-Busch InBev | 18.9x | |||
Sep-15 |
|
|
8.0x | |||
Jan-14 | Oriental Brewery Co. | Anheuser-Busch InBev SA/NV | 11.6x | |||
Jul-13 |
|
Royal Unibrew | 8.8x | |||
Feb-13 | Crown | Constellation Brands | 9.0x | |||
Sep-12 | Heineken N.V. | Asia Pacific Breweries (APB) | 17.2x | |||
Jun-12 | Grupo Modelo, |
Anheuser-Busch InBev | 12.9x | |||
Apr-12 |
|
Anheuser-Busch InBev | 13.0x | |||
Apr-12 | StarBev | Molson Coors Brewing Company | 11.0x | |||
Oct-11 | Anadolu Efes |
|
12.8x | |||
Sep-11 |
|
|
14.5x | |||
Aug-11 | Schincariol | Kirin Holdings Company | 15.8x | |||
Jan-10 | FEMSA | Heineken N.V. | 11.3x | |||
Sep-09 | Tennent's |
|
8.3x | |||
Apr-09 |
|
Kirin Holdings Company | 13.2x | |||
Jul-08 | Anheuser-Busch |
|
12.4x | |||
Jan-08 |
|
Carlsberg | 12.2x | |||
Jan-08 | Scottish & Newcastle Limited Assets | Heineken N.V. | 12.9x | |||
Nov-07 |
|
|
14.4x | |||
Median | 12.9x | |||||
Average | 13.2x | |||||
Notes: | ||||||
(1) Data per publicly available filings and company materials (multiples include estimates based on public info) |
***
About
_______________________ |
1 Normalized EBITDA (Excluding IFRS 16) of ~€110.5M per Engine’s estimates. Assumes share price as of |
2 See Appendix A. |
3 This range assumes a transaction between 10x and 11x normalized EBITDA and is inclusive of free cash flow generated through the current fiscal year end ( |
4 Calculated as of |
5
|
6 A fifth CEO will have to be selected in the next 12 to 18 months per the Company’s announcement. |
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